20 July, AtoZForex – Oil rebounds after a dip to two-month low, following the latest crude oil inventory report from the Energy Information Administration (EIA), showed lower stockpiles than economists forecast. On Tuesday, oil closed around the extremely low levels due to fears of lingering oversupply in the market.
Oil rebounds after dip to two-month low
Oil, along with other commodities were hit by the stronger dollar. The greenback advanced to a six-week high. Although oil has rallied sharply from 12-year lows seen earlier in the year, the downside remains potent as the possibility of increased supply lingers. On the other hand, global crude oil output, for now, seems to be dissipating as US output shrinks. This could, however, buoy U.S. drillers to use the rebound to place hedges that could help them boost output, BMI Research pointed.
According to Bob Yawger, director of the futures division at Mizuho Securities:
“The market rallied after the report from Goldman projecting lower U.S. output and another on how Brexit will increase the pace of North Sea shutdowns. Prices soon retreated because of the dollar’s strength. It’s been very difficult, especially in the last couple of weeks, for crude to move in the same direction as the dollar.”
While Bill O’Grady, chief market strategist at Confluence Investment Management also said:
“The strength of the dollar is putting a little downward pressure on commodities. The best argument for commodities, and crude, in particular, earlier this year, was the soft dollar.”
Having bottomed out around $27 per barrel earlier in the year — the lowest in over ten years — the fall in price forced many non-OPEC producers to reduce output. Which helped prices recover towards $50 per barrel, along with production shortages from countries like Venezuela, Nigeria, and Canada. The recent production reduction has, however, not been enough to kill the glut which had accumulated over the past two years. According to the EIA, inventories kept rising in June, pushing oil in floating storage – one of the most expensive methods of stockpiling – to its highest levels since 2009.
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