Oil futures were nearly unchanged Thursday after technical support helped lift prices from session lows, as the complex came under pressure from the US dollar rallying to a 14-year high against a basket of major currencies.
NYMEX January crude settled down 14 cents to $50.90/b. ICE February Brent settled 12 cents higher at $54.02/b.
NYMEX January ULSD settled 15 points lower at $1.6420/gal. NYMEX January RBOB settled 90 points higher at $1.5421/gal.
The US Dollar Index jumped Wednesday afternoon when the Federal Reserve said it would raise interest rates for only the second time since 2006.
That move was widely anticipated, but what seemed to catch the market by surprise was Fed projections suggesting three rate increases next year, up from two in September, Confluence Investment Management said in a note. "Adding to the hawkish tone was a warning of sorts from Chair [Janet] Yellen who, in the press conference, downplayed the need for fiscal stimulus, a key element of the Trump platform," Confluence said.
The US dollar index reached 103.56 Thursday, its highest level since December 2002. A stronger dollar makes crude and fuel imports more expensive for holders of other currencies, putting downward pressure on oil prices.
NYMEX January crude fell as low as $49.95/b, while ICE February Brent sunk to $53.15/b at one point, which could have invited some buying interest from traders.
"From now until the end of the year, without a lot on the agenda, I don't think prices will move too far from here," said Carl Larry, a consultant at Frost & Sullivan.
"If there's any slippage below $50[/b], we'll have spec buyers coming in," he said.
Another headwind for oil prices Thursday was the reopening of a major crude pipeline in Libya, which could pave the way for more production.
An armed group called the Rayayna Patrols Brigade reopened a pipeline on Wednesday that connects the Sharara and El Fil oil fields in southwest Libya that had been shut for two years.
Sharara was pumping close to 300,000 b/d before it was closed in late 2014, and the 130,000 b/d El Fil oil field has been closed since April 2015.
Libyan output stands below 600,000 b/d, compared with pre-civil war levels of roughly 1.5 million b/d.
OPEC members agreed November 30 to lower collective output 1.2 million b/d, but exempted Nigeria and Libya. Non-OPEC members pledged December 10 to make additional cuts totaling nearly 600,000 b/d.
Market participants have been eying developments in Libya and Nigeria closely, as signs of recovery could undercut the effectiveness of the OPEC-led reduction agreement.
A committee, which includes Kuwait, Venezuela, Algeria, and non-OPEC producers Russia and Oman, has been established to monitor the agreement.
The first meeting takes place early January, and will be attended by OPEC Secretary-General Mohammad Barkindo.
However, even if countries comply with the agreed cuts, rising US crude production could replace those barrels, a scenario that might already be underway.
US crude production was estimated to have risen last week to its highest level since May, according to Energy Information Administration data released Wednesday.
Output was up 99,000 b/d to 8.796 million b/d in the week that ended December 9, EIA said. Output has increased seven of the last nine weeks, up by 346,000 b/d over this period.
