US Crude Futures Witness Third Weekly Loss Even Amid Price Surge

Investments July 26, 2018

A Rise in Crude Futures

The fall in the greenback last week led to a surge in crude futures on Friday. Sources reported that the dollar fell after Trump’s claim that China, Europe, and some other nations were engaging in currency manipulation activities. The U.S. President also claimed that the actions on the part of the Federal Reserve in increasing interest rates were affecting economic growth.

The reduction in the expected oil exports from Saudi Arabia in August further strengthened the surge in oil price. Media outlets reported last week that the OPEC Governor of Saudi Arabia, Governor Adeeb Al-Aama stated earlier in the week that Saudi Arabia was expecting crude exports to decline by nearly 100,000 barrels daily in August as a way to limit the excess production. Governor Al-Aama further stated that the concerns about a possibility of oil cartels oversupplying the market with increased output were non-sentimental.

The reduction in the expected oil exports from Saudi Arabia in August further strengthened the surge in oil price

While the soon-to-expire U.S. West Texas Intermediate (WTI) crude contract for August delivery finished Friday’s trading session with a rise of 1.4 percent or $1 at $70.46 per barrel, the September contract was ten cents higher at $68.34 sometime before the close of the day. Brent was also up about 47 cents higher and traded at $73.05 per barrel after midday.

Effects of a Weaker Dollar

However, despite the gains of Friday, crude futures still had a third weekly decline in a row as the increase in supply led to a lower price during the week. The oil prices struggled with losses it suffered from the 4% plunge earlier that week when the U.S. lightened its position on Iranian crude imports. Sources, however, reported that the U.S. has suggested that there was a possibility that it could still allow some countries go ahead with the exportation of Iranian crude beyond the stipulated deadline date in November when the sanctions on Tehran are expected to take effect.

Several analysts have posited that a weaker dollar always leads to a boost in oil prices as it makes the trade of crude (which is in dollars) more affordable to those who hold foreign currencies. In other words, weaker dollar leads to dollar-traded products, such as oil, cheaper for those who hold other currencies and this in turn increases demand.

Analysts have posited that a weaker dollar always leads to a boost in oil prices as it makes the trade of crude which is in dollars more affordable to those who hold foreign currencies

According to Flynn, the dollar over the past few weeks changed the directions providing more robust support for oil prices. There were also bullish reports from American oilfields where some United States energy companies last week cut the most oil rigs since March. Reportedly, drillers cut about five oil rigs, and that made the total count 858.

The agreement of the Norwegian workers on drilling rigs to cease their strike action last week also removed a threat to oil and gas production in the area. According to Stephen Brennock, an analyst at PVM Oil Associates, the end to the strike of oil workers in Norway increased the potential of the crude futures.

Trade Concerns

Even with the current situation, traders stated that trade concerns have continued to take its toll on the market furnishing a ceiling for any gains. Trump, for instance, announced that he was prepared to impose tariffs on the total & 500 billion worth of goods imported from China and that affected stock trading. Also, the reduced oil demand in the US and China that resulted from an economic slowdown caused by the trade conflict between both countries would likely affect the market in significant ways.

As stated by Olaf van den Heuvel, a chief investment officer of St. Aegon Asset Management, the impact on the global economic growth of tariffs as vast as the ones currently in place will likely lead to significant adverse effects on markets.

In China, the People’s Bank of China last Friday reduced the midpoint for its currency for the seventh consecutive trading day which brought it to the lowest it had been in one year. It subsequently retreated to a 13 month low even though it managed to rebound later. According to an analyst at Tyche Capital Advisors, Taro Zahir, indications of an increase in Saudi Arabia and Russia oil production coupled with the unexpected build in US crude futures last week also impacted the prices.