Culled—Proshare
16/2/2018/FDC
After an impressive two months stint of trading above $65pb, the anticipated correction in oil prices may not be too far off. Brent crude dropped steadily for a few days to a year low of $62.4pb before recovering to $63.9pb. The surge in US shale production has been the primary force dampening the oil price rally recorded towards the end of January.
While oil importers and consumers will be pleased with lower oil prices, oil dependent economies such as Nigeria, will be concerned about the implications on their revenue projections. Also, whether the recent drop will resurface and trigger further cuts by OPEC and its allies, is too early to call.
The US dollar has also had its share of weakness. Factors such as the US government’s desire to pursue a weak dollar strategy, stronger growth prospects in regions such as the Euro area and the tightening of monetary policy in other developed economies were contributory factors to the dollar. The dollar fell by 3.25% in January, recording its largest monthly drop since March 2016. Currently the dollar index is trading at 89.682 compared to 92.24 and 88.67 at the start of the year and beginning of February respectively.
There is a high possibility that the dollar will recover in value against the basket of currencies if the macro-economic data such as inflation rate is favorable and the US FED increases interest rates at the next meeting. A stronger dollar will dampen oil prices due to the negative relationship between the value of the dollar and commodity prices.
