Market focus on two key factors influencing oil prices

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KUWAIT CITY, Jan 2: The market focus is currently honed in on two pivotal factors influencing oil prices, with their strength dictating market dynamics.

The first key factor is the degree of adherence by oil producers to the production adjustment agreement. An improvement in this commitment signifies a more substantial reduction in the overall supply available in the market, leading to an acceleration in the pace of depleting oil reserves, reports Al-Anba daily,

The second influential factor centers around developments in the American market. This encompasses aspects such as production levels, the count of active drilling rigs, oil reserves, and the volume of exports to diverse markets. Keeping a close eye on these elements provides valuable insights into the overall health and trends within the oil market.

The current weakness in oil prices is due to several factors, including: 

— Refining capacity in promising markets has begun maintenance programs, which means weak demand for crude oil. 

— Conflicting statements about OPEC’s intention to extend the production adjustment agreement do not help the market in examining and anticipating the path of the oil market. 

— Libya’s oil production has recovered and increased by more than 200,000 barrels per day, which is an indication of a new increase in supply. 

— Oil stock withdrawals, although they occurred, were below expectations, and thus meant a delay in restoring the balance of oil markets. 

— The number of rigs and American oil production continues to rise beyond expectations, which means confirming the increase in supply in the oil markets. 

In the oil industry, there is a prevalent conviction that the current dip in prices is transitory, primarily attributed to the anticipation of imminent withdrawals from oil reserves. The existing price level is seen as a stimulant for the rebound of global oil demand. Additionally, expectations align with the notion that exploration, drilling, and production activities in key oil-producing nations like Venezuela, Nigeria, and Mexico are being hampered, thereby curbing the overall supply.

Consequently, the market is eagerly anticipating the monthly projections released by the OPEC Secretariat, the US Energy Information Administration, and the US Energy Agency. These forecasts play a pivotal role in shaping the trajectory of the demand and supply equilibrium in the oil markets. The market is also closely monitoring the actions of speculators, with the hope that it will maintain a sense of calm until after the OPEC Ministerial Conference, as these events can significantly influence oil prices.

Kuwaiti oil prices reached their zenith at $53.3 per barrel on February 3, 2017, only to dip to $45.5 per barrel in recent weekend trading. There is an optimistic outlook that Kuwaiti prices may recover towards $53 per barrel again, contingent upon the acceleration of oil stock withdrawals, ultimately contributing to a more balanced state in the oil markets.

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