Oil prices hit their highest levels of the year on Friday, driven up by lower US production and a weak dollar.
Both US and Brent crude prices hit 2016 peaks, trading as high as $46.27 and $48.30 a barrel respectively.US domestic crude production has continued to fall in recent months, easing concerns about oversupply.
Meantime the dollar has lost almost 2% of its value against other global currencies over the past week.
A weaker US dollar typically contributes to a rise in oil prices, because oil is priced in dollars.
When the dollar weakens against other currencies, oil becomes cheaper to buy, pushing up demand.
Global Production
However, the latest rise in oil prices may be limited by a future increase in Middle East production, according to a note released by Deutsche Bank.
Iraq and the UAE are likely to raise production after maintenance issues are resolved, Deutsche indicated, and Saudi Arabia may also increase production significantly.
“A sustainable rise in Opec production may be just around the corner, and… the rally may pause,” Deutsche said.
But this may be tempered by events in Latin America, where Venezuela is struggling to maintain its own crude output, according to a report from Eurasia Group.
The organisation reported that low oil prices over the past two years have meant Venezuela’s government is running out of cash to keep its state-owned oil pumps operational.
Price dynamics
The oil price has fallen dramatically over the past two years since Brent crude hit a peak of $115 a barrel in June 2014.
One factor behind the fall has been slowing demand from China and other developing economies.
Supplies have also increased, most notably from new sources of US shale oil.
In addition, big producers such as Saudi Arabia have not reduced output to try to push up prices.
Some have argued that Saudi Arabia has been trying to keep prices low to squeeze the profits of US shale oil producers.
Earlier this month, a meeting of the world’s leading oil exporters failed to agree a cap on production.
Saudi Arabia appeared willing to freeze output only if all members of the Opec oil producers’ cartel agreed, including Iran.
But Iran maintained it would continue the increase in oil production it has followed since economic sanctions were lifted earlier this year.
Source: BBC