Supplies, Fed rate drag oil prices lower
Supply-side pressures and the influence of a decision to raise interest rates from the U.S. Federal Reserve sent oil prices lower in early Thursday trading. Crude oil prices moved lower in the previous session after the economists at the Organization of Petroleum Exporting Countries said supply and demand would balance out in the latter half of next year, compared with an earlier assessment from the International Energy Agency of possible first-half balance.
OPEC members and other producers agreed on a deal to hold production to 32.5 million barrels per day starting in January. The deal is meant to correct oversupply that pushed oil below $30 per barrel, though the move could have the unintended consequence of bringing more investments to U.S. shale, which has been more resilient to lower oil prices than expected.
North Dakota this week said its crude oil production had recovered after dropping below 1 million bpd earlier this year.
The OPEC deal relies on some non-member states for cuts and exempts some members, like Libya and Nigeria, from the deal. Iran, meanwhile, is allowed to grow as it looks to regain a market share lost to sanctions.
Libya may be reintroducing some oil back into the market as negotiations move forward in a way that could unblock some Mediterranean crude. Iran, meanwhile, was delivered a break of sorts from Washington. U.S. lawmakers extended Iranian sanctions, though the White House said some sanctions relief would remain in place so long as it honors a multilateral nuclear deal.
"Extension of the Iran Sanctions Act does not affect in any way the scope of the sanctions relief Iran is receiving under the deal or the ability of companies to do business in Iran consistent with [the terms of the international deal," U.S. Secretary of State John Kerry said in a statement.
Iran is already producing oil beyond what it was under sanctions and the relief offers some opportunities for more investments for the OPEC member.
The price for Brent crude oil was down 0.9 percent from the previous day to open at $53.42 per barrel in New York. West Texas Intermediate, the U.S. benchmark price, risks dropping below a psychological threshold by moving down 1.5 percent to start the day at $50.27 per barrel.
Crude oil prices came under pressure late Wednesday when the U.S. Federal Reserve took a hawkish stance on interest rates, raising them as expected, but suggesting a more aggressive stance next year as the U.S. economy gains traction. Interest rates influence the value of the U.S. dollar, which subsequently influences the value of dollar-traded crude oil.
Brokerage PVM said that even with uncertainties about the pace of the U.S. economy with the presidential transition underway, the dollar gained significant ground and put negative pressure on crude oil.