United States crude oil prices dropped 2.27% on Thursday. The drop erased a previous rally on Wednesday. Commodities as a whole underperformed on Thursday due to the dollar’s strong performance.
Wednesday’s gains resulted in U.S. crude closing at a 15 month high after a 2% rally.
The rally was due in part to the Energy Information Administration estimates that crude inventories fell by as much as 5.2 million barrels last week. The announcement coincided with OPEC’s recent talks of a deal that will low output 32.5 million barrels a day, down from 33 million barrels in an attempt to stabilize oil prices.
The dollar index, which weighs the greenback against a basket of major currencies, benefited from the European Central Bank keeping interest rates the same on Thursday. The ECB’s announcement helped the dollar index reach a seven-month high and a three-month high against the euro.
U.S. crude stocks have struggled in recent weeks falling by 2.65 million barrels over a seven-week period.
A drop of his magnitude is unusual for crude stocks.
Refineries ran at only 85% capacity in the week ended October 14. Imports for crude were down on the week and were responsible for the draws, according to reports.
OPEC’s announcement of a potential cut to production has been the focus of attention for investors. The planned output cut would be the first in 8 years. OPEC has talked of cutbacks in the past, but the talks never materialized.
Oil prices are nearly half of their mid-2014 highs, when oil peaked at over $100 a barrel.
Skeptics urge that OPEC may not come to a deal as reported. The 14 member states will discuss the matter further at a November 30 meeting.
Member states will need to agree on cutbacks that don’t lead to members losing an uneven market share as a result. OPEC’s previous talks stalled when members couldn’t come to an agreement on appropriate cutbacks that didn’t sway the oil market in certain members’ favor.
Bullish backed by supportive conditions have the potential to push oil up towards the $60 a barrel mark.
Resistance levels are expected as oil passes the $53 per barrel mark.
OPEC expects non-OPEC members to engage in talks in November. Russia’s participation is vital for the talks to be fruitful. A disagreement or failed resolution on oil production will cause oil to meet resistance in December.
Crude oil is down to $50.62 a barrel on Thursday.