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Oil Dips 2% on Rising OPEC Output, Strong US Dollar

August 29, 2016 at 17:36 by Andrew Moran

It may be about one month until Organization of the Petroleum Exporting Countries (OPEC) members agree to a production freeze. Until that informal meeting in Algeria happens, output among the 14-nation bloc will continue to surge and flood the global markets with oil.

This increasing output has hurt oil prices to start the trading week. October West Texas Intermediate (WTI) crude slipped $0.79, or 1.66%, to $46.85 per barrel at 17:10 GMT on the New York Mercantile Exchange. US crude is hovering around a one-month low.

Brent prices are also taking a hit. Brent crude fell $0.75, or 1.50%, to $49.17 a barrel on London’s ICE Futures Exchange. Brent has failed to maintain the momentum that it had when it surged above the closely watched $50 threshold.

Oil was largely affected when Iraq’s oil Giant Bounce House minister confirmed over the weekend that it will continue to ramp up its production efforts. Saudi Arabia has said that it is keeping its output at around record levels this month. It remains unclear as to what Iran’s main position is right now.

OPEC members will meet for informal talks from September 26 to 28 in Algiers to discuss the possibility of freezing oil production levels. The purpose behind this proposal is to help oil prices stay above $50 to $55 a barrel in the immediate future.

In addition to rising OPEC output, oil prices are being battered by a stronger US dollar.

After Federal Reserve Chair Janet Yellen stated on Friday that the case for an increase to interest rates has “strengthened,” the greenback itself has strengthened. If the US central bank does move ahead with a September rate hike then the dollar could go even higher.

The Federal Open Market Committee (FOMC) will hold its next meeting on September 20 and 21. This will be the key meeting to decide if the Fed will raise rates or delay the hike again. Fed Vice Chair Stanley Fischer noted the final metric to determine if a rate hike will unfold is August’s labor numbers.

Oil prices are up 70% so far this year after sinking to 12-year lows in February.

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