Various economic forces are leaving their mark on the oil price. Due to the declining exchange rate of the dollar and the lowered production ceilings of OPEC+, the price of Brent oil is rising. However, the increase is limited by disappointing demand and record exports from the United States.
After a short period of decline, the oil price is on the rise again. On October 20, the price of Brent oil was at its lowest point with a price per barrel of $92,38. The first three days afterward the price was on the rise. On Thursday, October 27, the oil price was at its highest, at $96,96.
The falling value of the dollar in particular is causing prices to rise on the oil market. Because oil transactions are settled in dollars, the lower exchange rate of the dollar makes it more attractive for traders outside the US to invest in the oil market. Since October 19, the dollar has been losing value against other major currencies. On that day, the exchange rate of $1 was still €1,02, but on Thursday, October 27, the dollar was only worth €0,99.
OPEC+ intervention ensures limited increase
But the low level of the dollar is certainly not the only reason for the rising oil price. OPEC+'s lower production targets also keep pressure on the oil market. As oil demand fell this summer, OPEC+ decided on October 5 to reduce their production ceiling by 2 million barrels. Since the ceiling was lowered, the oil price has been at least $10 higher than after the intervention. However, the oil cartel's intervention does not yet seem to meet analysts' expectations. The oil price is not yet close to the $110 they envisaged for the fourth quarter.
One reason for this is that the oil production of most OPEC countries did not come close to the previous ceiling. In practice, the production decrease is therefore lower than the daily 2 million barrels. Moreover, the United States is able to absorb the decline in oil production. Since OPEC+ cut back production, US oil export figures have been on the rise. Last week, the US exported a record 5,1 million barrels of crude oil per day.
Demand for oil is lagging behind
Another reason that the oil price is lagging behind forecasts can be found on the demand side of the market. Signals that oil demand continues to decline remain prevalent. Companies continue to sell less oil than they expected and this is reflected in the American market. Despite the export record, reserves of American oil companies grew a lot faster than expected. Inventories grew by 2,59 million barrels, according to the Energy Information Administration (EIA). This volume is considerably higher than the expected growth in reserves of 1,03 million barrels.
The diesel price does not seem to care much about the rising oil price and continues to decline. The diesel price has been falling since Thursday, October 20. At that time, 100 liters of diesel cost €168,07. On Wednesday, October 26, the diesel price was at the lowest point of the week and 100 liters was only €162,12.