Oil prices declined by more than a dollar Wednesday following the two-day trading holiday in Singapore in celebration of the Lunar New Year. While they moderately recovered in the next two trading days, averages for the week were still lower than in the preceding week. Dubai crude decreased week-on-week by more than US$1 to about US$110/bbl, as well as diesel to about US$130/bbl. Gasoline increased over previous week by about a dollar to about US$130/bbl.
Among the reasons of the week's price movements are as follows:
The bigger-than-expected jump in US crude inventories pulled prices down Wednesday. The US Department of Energy said that the country's crude stockpiles jumped by 3.6 million barrels last week -- five times the amount expected by analysts -- and indicating weak demand in the world's biggest consumer of oil.
Oil markets were also tracking tensions between Iran and the West after the European Union agreed last Monday on an immediate ban on oil imports from Iran and phase-out of existing contracts effective 1 July 2012. In retaliation for the embargo, Iran's Parliament warned that lawmakers will work on a plan to stop Iran's oil exports to Europe before July.
Oil prices responded as well to weakness of the US dollar as a result of the Federal Reserve's extension of the time frame of its ultra-loose monetary policy to bolster US growth. The US central bank's policy-setting, Federal Open Market Committee, said its key interest rate would remain near zero through at least 2014, extending a prior timeframe of mid-2013.
Analysts believed Fed's announcement supported crude oil prices in two ways: (1) the long-term accommodative policy should help support economic growth and, accordingly, energy demand from the world's largest crude user; (2) the decision has pressured the dollar- a weaker US currency makes dollar-denominated crude cheaper for buyers holding other currencies, tending to boost demand.
Meanwhile, Citi Futures Perspective analyst noted that the faster-than-expected recovery of the Libyan oil production would add to a likely first half 2012 supply/demand surplus. By this time Libya is expected to hit output of 1.3 million a day.