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Oil Prices: Up or Down?

Published on: 25/11/2016

As of today (Friday, November 25) the oil prices have sunk by 1% as a result of a combination of factors – the consistently strong dollar, Saudi Arabia’s increase in exports to Asia, and a smaller demand for imports in China.

Brent crude oil is currently trading at $48.42, down 1.2%, though some of this may be a result of the general inactivity in the United States as the country celebrates a Thanksgiving long weekend. The WTI crude is at $47.41 per barrel, also 1.2% down from its price at the previous market close.

The main reason for the drop in prices is the dollar that is currently in its 13-year highest point. With an expensive dollar the absolute value of oil in importing countries becomes greater, so they try to compensate by curbing on their supply, which generally decreases the price of oil.

There is, of course, the upcoming OPEC meeting to consider – oil exporting countries are expected to agree on a reduction in oil extraction, which would help alleviate the oversupplied market and stabilize prices. However, even if a decision is reached, it won’t come into at least until February. There are speculations that Saudi Arabia may try to market more to Asian countries in January, before the limitations (if there are any) come into effect, according to Reuters. This would be seen as a response to Russia, as the two countries seem to be fighting over China, more specifically who will be the number one oil supplier to the biggest importer in the world. Previously it was the Saudis, but recently Russia gained an advantage over them.

The OPEC meeting on November 30 is supposed to bring more clarity and calm the oil market substantially. However, there were other meetings recently that failed to produce the desired effect because OPEC member states seem to be in a disagreement as to who should cut how much of their oil extraction. Most of these countries’ GDP is entirely reliant on oil revenue, so it’s no wonder why some would be unwilling to cut production.

In light of these agreement struggles traders are not very optimistic – they expect that even if a decision is reached (which might not happen), it might not be of the appropriate scale in order to compensate for the massive oversupply of the past two years.

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