Oil prices set to end positive week on trade, weaker dollar, OPEC cuts

By Renzo Pipoli   |   Jan. 11, 2019 at 9:33 AM
Crude oil prices were slightly lower Friday but appeared set to end the session with a significant weekly gain based on several factors, including trade talks, a weaker dollar and OPEC production cuts. Photo by Brian Kersey/UPI

Jan. 11 (UPI) -- While slightly lower early Friday, crude oil future prices appeared set to end the week with a significant gain based on expectations of trade improvements, a weaker dollar and output cuts by OPEC.

West Texas Intermediate front-month crude futures traded at $52.29, or 0.6 percent lower, at 08:30 a.m. EST, with Brent crude trading 0.7 percent lower at $61.25 per barrel.

"Crude is running out of steam after a very strong week, following equities in turning negative," Matthew Smith, director of commodity research at ClipperData, told UPI.

However, while lower in early Friday trading, futures were retaining most of the gains seen during a week which had started with WTI futures closing on Monday at $48.52 per barrel and Brent futures at $57.33 per barrel.

"Crude is having a positive finish to the week, egged on by a number of factors: broader positive market sentiment underpinned by easing trade war concerns, a weaker dollar, and signs of a swift start to the renewed OPEC production cut deal," Smith added.

Most of the gains during the week occurred between Tuesday and Wednesday, amid reports that two days of scheduled trade talks between the United States and China at the start of the week were extended for an additional day on Wednesday.

This extension led to traders' expectations for some agreement that could help eliminate tariffs exchanged between the two countries last year, and avoid new ones. Concerns about an economic slowdown in China, the world's biggest oil importer, had contributed to crude oil declines in recent weeks.

A weaker dollar, after the U.S. Federal Reserve hinted last week it would be more patient regarding new interest rate hikes, also helps the market as crude oil futures, and most physical oil transactions, are denominated in dollars. If the dollar value declines compared with other currencies, this can make crude oil prices more accessible and contribute to higher demand.

As for OPEC, traders have noted that recent reports appear to indicate that Saudi Arabia -- the cartel's biggest producer -- is carrying out its commitment to reduce production in a bid to help lead to greater crude oil prices. OPEC and Russia agreed to cut 1.2 million barrels of crude oil exports between them starting this year.

Jeff Yastine, a senior research analyst at Banyan Hill Publishing, said that the correlation between the oil and equity markets also contributed to the weekly gain.

The Dow Jones Industrial Average rose from 23,531.35 points on Monday to over 24,000 points on Thursday.

"Oil and the stock market remain heavily correlated since both are proxies for economic activity and the overall strength of the U.S. dollar," Jasmine said.

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