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Oil prices fall for third week straight due to monetary policy

oil prices high record

Oil prices fell this Friday, whipping out the gains from past weeks, on pressure from monetary policy strengthening the dollar, and on worries that the US Federal Reserve could boost interest rates to cool down inflation.

Firstly, Brent crude features fell 70 cents, or 0.8%, to settle at $82.17 a barrel. While the US mix, the West Texas Intermediate (WTI) crude fell 80 cents; or 1%, to settle at $80.79 a barrel. Both benchmarks fell for a third consecutive week.

Moreover, there’s speculation from investors that Joe Biden’s administration would release oil from the US Strategic Petroleum Reserve; would do so to cool down gasoline prices. Back on Monday, US Energy Secretary Jennifer Granholm said that Biden could act as soon as this week to address soaring gas prices.

About the matter, Louise Dickson, senior oil markets analyst at Rystad Energy, commented. “This week has been a good reminder for oil markets that prices are not only affected by the supply-demand trajectory but also from monetary policy forecasts and by forms of government intervention.”

He also commented that higher interest rates would further support the dollar and put even more downward pressure on oil prices. Nevertheless, Phil Flynn, senior analyst at Price Futures Group, said to Reuters. “We believe that whatever the announcement is will only have a short-term impact on price, but because of the uncertainty, the market is pulling back a little bit.”

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Oil prices could still endure volatility

On the other hand, US energy firms added new oil rigs this week, the third in a row, which signals an increase in future output. During this week, the rig count rose to 556m, its highest level since April 2020, according to Baker Hughes’ data.

Furthermore, Russia’s Rosneft, the world’s second-biggest oil company by output, warned this Friday that a potential “supercycle” could hit energy markets, raising the prospect of higher prices as demand outstrips supply.

In addition, OPEC and its allies have plans to add 400,000 more barrels to the global market, as agreed earlier this year. Nevertheless, OPEC also trimmed its demand forecast by 330,000 barrels per day (bpd) from last month’s forecast as high energy prices hampered economic recovery.

Consequently, the market could still suffer volatility. Stephen Brennock of oil broker PVM, concluded. “The oil market is sleepwalking into a supply surplus. OPEC and its allies will at the very least need to put a pause on the easing of their supply curbs in the new year. Inaction will result in global oil stocks swelling once again.”

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