Oil prices fall on rise in US drilling, strong dollar

Oil prices fall on rise in US drilling, strong dollar

Oil prices fall on rise in US drilling, strong dollar

Higher oil prices also have the potential to bring about relatively greater stability in the economies of some large EM countries as well as the potential for higher inflation. This will only come once it has been decided which countries will cut production and by how much.

The collapse in prices has been driven in part by supply-side factors. Widespread adoption of electric vehicles will be "resoundingly negative" for oil and gas companies, Fitch Ratings said in a new report. "What is interesting this time round is, firstly, the consistency of Saudi support for lower production and, secondly, their willingness to exclude Iran from the cuts".

"If we, Saudi Arabia, or Opec as a whole, cut production without the participation of major non-Opec members, we would be sacrificing revenues as well as market share", he writes.

"We are in a temporary state during which the world's most important commodity is being repriced for the future", he writes.

Traders said a drop in the dollar away from seven-month highs the previous day supported crude.

The oil market suffers a grave disproportion between supply and demand since 2014, the destabilization has caused a record-breaking surplus in supply. Makoto Saitou, an economist at NLI Research Institute, said higher oil prices "will not necessarily be a negative factor for the whole of Asia".

"This upward pressure on the prices would stimulate some high-cost producers to increase their production, such as the US shale oil", Fatih Birol said Tuesday in an interview at the conference venue in London. "They produced 10.5-11 million barrels each". Once production targets are reached, OPEC will reach out to non-OPEC producers for cooperation. However, the fragility of the deal became clear within hours when Iraqi oil minister Jabar Ali al-Luaibi questioned the basis on which Opec estimates a member's production and accused the cartel of underestimating his country's output.

Another factor keeping prices down is that non-OPEC producers have significantly reduced their costs. The USD is considered to be one of the biggest factors that determine the oil price, as oil contracts are settled in this currency.

In practice, however, the cost structure depends on a host of other factors, including technological improvements, human expertise, and so forth. The gains come as both oil and natural gas prices have showed gains since September, encouraging companies to send crews back to work.

Should prices increase, all eyes will be on the USA oil shale markets.

Gasoline prices have leveled off after coasting downhill with the slump in oil.

Prices are likely to get a further boost if the Saudi Arabia-led OPEC formalizes the output-reduction framework at a general meeting on November 30. However, futures have several limitations. The November WTI futures contracts expire at Thursday's settlement. According to published data, the oil import bill in 2015-16 fell to $64 billion from $113 billion in 2014-15. But if prices get too high – closer to $60 per barrel and higher – then enough supply comes back online to push prices back down again.

However, more losses could be ahead if oil and LNG prices fall.

Analysts at Bernstein Energy pointed to a slower build in global oil inventories.

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