Oil Prices Increase on Expectations of Tightening Supplies

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On Wednesday, oil inched higher with top exporter  Saudi  Arabia projected to increase prices for its crude as part of intended supply reductions, although a strong greenback  and moderate economic development forecasts restricted gains.

U.S. West Texas Intermediate (WTI) crude futures (CLc1) were trading at $52.65 per barrel at 0237 GMT, up 32 cents, or 0.6%, from the last settlement.

International Brent crude futures (LCOc1) increased 32 cents, or 0.6%, at $55.79 a barrel.

Traders stated the gains were because of  an expected tightening of physical oil supplies, as major producers like the Organization of the Petroleum Exporting Countries (OPEC) plan to reduce crude production from this month in an effort to end a global fuel excess that has dogged markets for more than two years.

In February, possibly reflecting a tightening market, top oil exporter Saudi Arabia is anticipated to increase the official selling price (OSP) for all its crude grades to Asia.

Official selling price (OSP) for crude delivered to customers around the globe is a key indicator in deciding the prices for crude futures like Brent or West Texas Intermediate (WTI).

In spite of the possibly tightening physical oil market, crude futures are being burdened by a strong U.S.-dollar, which makes it more expensive for countries to import dollar-traded fuel.

This week, the greenback hit a 14-year high (DXY) on the back of strong U.S. economic data.

“The dollar remains supported due to the fact that the Fed has not only turned hawkish but it has already started its policy tightening cycle, while the rest of the major central banks are pretty much dovish across the board,” Razaqzada said.

Both foreign exchange and crude changes will be impacted by the position of the global economy.

In spite of encouraging numbers in late 2016 and the first days of  2017, analysts said that growth prospects were moderate.

“The West ended 2016 on a strong note. The Eurozone picked up steam, the UK is defying gravity and the U.S. is on a roll. Note, however, that this strength isn’t fully feeding through into Asia.. China and Japan are expanding, sure, but only at a tepid pace,” said Frederic Neumann, co-head of Asia Economics Research at HSBC in Hong Kong.

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