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Oil prices advanced to their highest level since early March, hovering near five-month highs. 

Brent crude rose to $44.40 per barrel, while WTI also gained to $41.22. The year-to-date price average for Brent is $40.38.

Among the reasons for the weekly gain was the the larger than expected drop in US commercial stocks for the second consecutive week. Another was the collective action of OPEC countries which together exceeded 100 percent compliance in earlier agreed production cuts.

This involved the cooperation of previous compliance laggards such as Angola, Iraq and Nigeria.

OPEC members produced 23.25 million barrels per day (bpd) in July, up by 970,000 bpd from a 28-year-low in June of 22.28 million bpd.

A weaker US dollar has also helped to support higher oil prices. Because oil is priced in dollars, when the greenback is weak, it becomes cheaper for many countries.

The latest downward movement in the US currency has been blamed on US government interventions to stem the pandemic. The weakening trend may not be over yet with Morgan Stanley reporting that the dollar is the most over-sold in 40 years.

If the currency goes lower again, oil may rise in response.

This could be an important driver for the movement of oil prices which have stayed stubbornly around $40 for weeks.

Despite an increase of COVID-19 cases in many US states, the decision not to shut down commercial activity again has also supported oil prices.

So while we see potential for upward movement, it is likely to be at a slow pace as the threat of a second wave of the coronavirus pandemic hangs over the global economy like a giant cloud.

Demand for refined petroleum products remains far behind its pre-pandemic levels. Daily flight tracking data show commercial flights are still 50 percent below summer 2019 levels. In addition, the US high summer driving season is about to end. 

Conversely, China remains a bright spot for crude demand. Although China’s July crude oil imports fell to 12.13 million bpd from a record high of 12.99 million bpd in June, they were still above 12 million bpd for the second time on record.