Oil Dips On Strong U.S. Greenback But Upward Trajectory Expected To Resume

Meanwhile, OPEC is expected to agree to an output hike next week: File Image/Pixabay

A strong U.S. dollar was said to have been the reason for a brief pause on Thursday in oil's remarkable price gains this week, although most analysts agree that tight fundamentals combined with geopolitical pressure ensure that the commodity will soon resume its upward trajectory.

Specifically, experts believe it is a fait accompli that Russia will invade Ukraine in some form, and Citigroup Inc. said a rise in crude volatility demonstrates the market is pricing in an increased political risk premium, perhaps of at least $5 per barrel.

Also of interest to analysts on Thursday was a U.S. Federal Reserve open market committee meeting in which chair Jerome Powell signalled that the Fed was ready to raise rates at its meeting in March as widely expected.

Yeap Jun Rong, market strategist at IG, said, "With his comments that 'the committee is of a mind to raise the federal funds rate at the March meeting,' a March rate lift-off has been clearly reaffirmed, which does come in line with market expectations."

James Knightley, chief international economist, at ING, added, "There is arguably a window of tranquility now for risk assets as we roll forward to the March meeting, which is quite some distance away."

The next major event expected to affect trading is next week's meeting of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia: delegates believe the cartel will approve an output increase of 400,000 barrels per day for March.

However, OPEC members have already experienced difficulty delivering their quotas, and Louise Dickson, senior oil markets analyst at Rystad Energy, noted that "OPEC+ under performance and inaction support elevated oil prices as the group has under delivered against its stated production targets by hundreds of thousands of barrels and has committed to a passive role in the conversation despite external pressure, primarily from the U.S., to increase production and ease fuel prices."

But while high oil prices are a major concern for economists who worry that they could impede a global demand recovery, they are a boon to energy producers, the latest case in point being Sinopec.

On Thursday, China's largest refiner disclosed that its net income rose 103 percent to 122 percent in 2021 from a year earlier, the biggest annual net income in nearly a decade; this comes on the heels of an earlier report that PetroChina Co.'s preliminary net for 2021 rose by 374 percent to 395 percent, its best performance in seven years.