Factors that Lift Up Oil Price

Draw in US Oil Inventories

Vaccination Hope

OPEC+ Production Cuts

Growth in Demand in Asia

Relative Calm in the Middle East

www.oilfutures.co.uk

 

Neither the riots in the Capitol building nor the new lockdowns in the Western capitals caused a decline in oil price, as investors know from their bitter past experiences that these hiccups will pass off at some point in the future, having been left in a lurch of endless uncertainties.

Even WTI crude oil hit above $50 a barrel this week and the positive trend continues unabated. 

One of the key factors that drove the oil price to the current level is the anticipated draw in the US crude oil inventories. Although the API, American Petroleum Institute, predicted a drop on Tuesday, the EIA, the US Energy Administration, disclosed an even a higher draw on Wednesday.

The inventory draw figures from the two camps were a modest 1.66 million barrels to significant 8 million barrels respectively during the past week.

US Oil Inventories - this week


The fact that oil price kept rising even before these announcements, implies that the investors, somehow, were aware of the development on inventory front even before the figures came out.

The steady growth in demand in Asia,  meanwhile, is encouraging despite the spread of virus still looms over the region; people begin to live with the pandemic in spite of spikes in infections in some countries in the region.

In another significant development on the geo-political front, Qatar and Saudi Arabia started normalizing the diplomatic relations, while opening up land, sea and air border, with the blessing of the other neighbours such as the UAE and Egypt.

Qatar must have breathed a huge sigh of relief with the diplomatic victory, as it had been forced to bear huge transport costs due to border closure since 2017; whether the unity of Sunni Muslim block in the Gulf is a move to drive a wedge between Iran, a Shia Muslim nation and the former, remains to be seen.

The diplomatic relations, established between the UAE and Israel, which paved the way for expanding the development to a wider area in the region, also favoured lifting the mood in the oil markets.

The outcome of the recently-concluded OPEC+ meeting also favoured the oil markets; the modest production rise, just 75,000 bpd, in Russia and Kazakhstan pales into insignificance, when compared with translucent production cuts by the rest of the cartel.

Despite the palpable optimism in the markets – oil or otherwise – the risk of pandemic playing havoc in the economies has not gone away, especially with the emergence of new variants, which tend to spread fast.

In the United Kingdom, for instance, the death toll passed 1000 on Wednesday for the first time since April, with over 50,000 daily infections.

Although authorities are hopeful that they can vaccinate the most vulnerable strata of the population, judging by the intensity of the lockdown and the steely determination to impose strict measures to see it through, indicate that the vaccines do not form a silver bullet against the pandemic.

All in all, the stability of the oil price is good for the producers and millions of people whose livelihood entirely depends on it. In addition, major oil companies can invest more money on research to minimize the environmental damage, before being collectively demonized for not doing enough on this front in pursuit of profit.

 

 

 

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