MARKET WATCH: US interest rate hike pushes down oil prices

Crude oil prices on markets in New York and London fell by almost $2 on Dec. 14 and the decline continued into Dec. 15 in a reaction to the US Federal Reserve’s decision to lift interest rates and a resulting stronger US dollar.

The dollar surged to a 14-year high after the Fed said it would increase rates by 25 basis points and projected three possible rate hikes in 2017 instead of the two it had previously planned.

Because oil trades in dollars, a strengthening greenback makes oil more expensive for buyers using other currencies, and can particularly impact emerging markets that account for much of the world’s consumption growth.

As for the oil market itself, concerns persist over the global supply glut and whether deals limiting output will be carried out both within the Organization of Petroleum Exporting Countries and between the cartel and outside producers.

While the Energy Information Administration on Dec. 14 said US crude stockpiles fell 2.6 million bbl last week, OPEC's Monthly Oil Market Report indicated the cartel’s output rose 150,000 b/d in November to 33.87 million b/d. Additionally, EIA earlier this week said it expects crude production from the seven major US onshore producing regions to rise slightly month-over-month in January (OGJ Online, Dec. 12, 2016).

OPEC has agreed to cut production by 1.2 million b/d starting Jan. 1, and some non-OPEC countries have agreed to cut production by 558,000 b/d (OGJ Online, Dec. 13, 2016).

Analysis by Thomson Reuters, however, suggests current OPEC production is likely to be below official reported figures, with current production reported for Saudi Arabia, Iran, and Iraq higher than actual production based on field level analysis.

“As a result, in our view there is unlikely to be a major rebalancing at least in physical markets terms following the OPEC production deal,” said Shakil Begg, Thomson Reuters head of oil research and forecasts.

Energy prices

The January crude oil contract on the New York Mercantile Exchange dropped $1.94 on Dec. 14 to close at $51.04/bbl. The February contract fell $1.85 to $52.09/bbl.

The natural gas contract for January gained 6.6¢ to $3.54/MMbtu. The Henry Hub spot market for gas closed at $3.52/MMbtu, down 8¢.

Heating oil for January declined 3.12¢ a rounded $1.64/gal. Reformulated gasoline stock for oxygenate blending for January lost 1.76¢ to a rounded $1.53/gal.

The Brent crude contract for February on London’s ICE decreased $1.82 to $53.90/bbl. The March contract dropped $1.74 to $54.65/bbl. Gas oil for January relinquished $1.75 to settle at $488.25/tonne.

The average price for OPEC’s basket of benchmark crudes for Dec. 14 was $51.83/bbl, a decline of 56¢.

Contact Matt Zborowski at matthewz@ogjonline.com.

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