Oil price recovery: slow train coming

By Peter Stewart 11 January 2017
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A sustained recovery in oil prices will be hampered by the strength of the United States dollar. (SXC) A sustained recovery in oil prices will be hampered by the strength of the United States dollar. (SXC)

Oil prices will stabilise in 2017, but a sustained recovery will be hampered by the recent strength of the United States dollar. While the oil and gas markets remain focused on OPEC’s adherence to production cuts agreed in November between the cartel and a group of non-OPEC countries, currency gyrations may have as much of an effect on oil and gas prices in 2017 as the dynamics of supply and demand.

The US Federal Reserve raised interest rates on 15 December – only the second time it has done so in a decade. After the 2008 financial crisis it cut rates to boost the economy, driving down the key Fed funds rate from 5.25% to 0.125%. The hike raised the target for the rate from 0.25-0.50% to 0.50-0.75%. Further rate rises are likely in 2017 after President-elect Donald Trump starts to put in place his promised programme of infrastructure spending following his inauguration on 20 January. The Fed’s initial rate rise at the end of 2015 was expected to be followed by four further increases, but these did not materialise because of the economic slowdown in China, the UK Brexit referendum and economic jitters before the US presidential election.

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