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US Crude Tumbles to Under $50, Brent Struggles

October 25, 2016 at 17:15 by Andrew Moran

Oil prices are tumbling on Tuesday as the US dollar strengthened and the freeze agreement among members of Organization of the Petroleum Exporting Countries (OPEC) appears to have taken a turn for the worst.

December West Texas Intermediate (WTI) crude tumbled $0.59, or 1.17%, to $49.93 per barrel at 16:48 GMT on Tuesday on the New York Mercantile Exchange. This comes one day after US crude fell 0.7%.

Brent crude is struggling to stay above $50. December Brent crude slipped $0.66, or 1.28%, to $50.80 a barrel on London’s ICE Futures exchange. Brent has overwhelmingly recovered after hitting a 12-year low in February. It has since surged more than 70% over the last eight months.

Oil prices have soared over the past month after OPEC nations agreed at an informal meeting in Algeria to cap oil production efforts. It seemed like a done deal, but now it looks like some countries are trying to back away from the move.

Iraq, which is the second-largest producer in OPEC, argued that it should be exempt from an output freeze because it needs the oil revenue to fund the fight against ISIS militants. Meanwhile, Iran has rejected OPEC’s oil freeze estimates, though the oil-rich nation has pledged to follow through with a production cap.

During its informal meeting in Algiers last month, OPEC agreed to cap oil production at 33 million barrels per day (bpd).

If there is one thing traders do not like it is backpedaling on an agreement.

US crude declined further as the greenback strengthened to a nine-month high on strong manufacturing data. This makes dollar-denominated commodities more expensive for foreign investors.

Oil could be further impacted after the release of the weekly American Petroleum Institute (API) report of crude stockpiles and supply-demand data. Analysts forecast that crude stocks increased 800,000 barrels last week.

This comes one week after OPEC Secretary-General Mohammed Barkindo warned that oil nations need to invest approximately $10 trillion into the oil industry over the next 20 years.

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