Oil Prices Drop on Profit Taking, Strong Greenback

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On Friday, oil prices decline in this Asian trade ahead of the Christmas and New Year Holidays, eroding some of the gains in the prior session as traders took profits.

Delivery of Brent futures for February declined 23 cents, or 0.4%, to $54.82 a barrel as of 0425 GMT after ending the prior session increase 1.1%.

U.S. West Texas Intermediate crude (CLc1) fell 26 cents, or 0.5%, to $52.69 a barrel after settling up 0.9% in the prior session.

“There’s some profit taking after the last session’s gains. Oil prices are also weaker due to the stronger dollar,” said Jonathan Barratt, chief investment officer at Sydney’s Ayers Alliance.

“But overall, the fact the dollar and commodities are soaring either tells you demand for commodities has picked up or there is a need for more supply,” he added.

The dollar index (DXY) was a bit lower on Friday, but was still near to a 14-year high of 103.65 earlier this week.

A stronger greenback makes dollar-denominated commodities, including oil more expensive for holders of other currencies.

Since mid-2015, oil prices are trading around their highest levels, supported by an agreement by the Organization of the Petroleum Exporting Countries and non-OPEC oil producers to reduce production by nearly 1.8 million bpd from Jan. 1.

Barratt will expect U.S. crude to trade approximately $60 a barrel in the 1st quarter next year, with Brent around $62-$63 a barrel.

The output reductions will correspond with the first sale in January of U.S. crude from the country’s strategic petroleum reserve, New York-based tanker and energy consultancy Poten & Partners said in a note on Thursday.

“If all planned sales go ahead, the U.S. SPR could be reduced by some 190 million barrels between 2017 and 2025,” the note added. The current inventory is around 695 million barrels.

Even though the volumes were small, the “U.S. government is adding oil to the market at the same time that OPEC is trying to remove it,” Poten said.

Somewhere else, on Thursday, Talal Nasser Al Athbi, head of the Organization of Arab Petroleum Exporting Countries’ (OAPEC) Executive Bureau stated that supply and demand in global oil markets should rebalance during the 1st or 2nd quarter of next year.

Moves by Libya to increased oil output following the reopening of the country’s main oil pipelines in the west could be outshined by an unsettled political power struggle and the danger of new blockades.

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