Rising Oil Price: traders stubbornly maintain optimism

 

oil price positive factors

Oil traders appear to be pinning their hopes on the colossal stimulus package proposed by the incoming Biden administration, as there is a possibility of a significant drop in demand due to new variants of the Coronavirus.

The impact of the Coronavirus is far from being managed in the West despite the optimism of the leaders. The vaccines have not reached the status of magic bullets either.

In the UK, the daily death toll has hit above 1600, the worst figure since the pandemic broke out; the infections are tantalisingly high too.

UK covid-19 death toll


In these circumstances, the possibility of easing lockdowns in a matter of weeks is almost zero. That means less traffic on the road as movements are restricted in proportion to rising infections.

In this context, the demand for oil will suffer, as predicted by the leading energy watchdogs.

This must be the thinking behind the Saudis in cutting down the output by 1 million barrels for February and March, in order to maintain the price of crude oil above $50 a barrel.

The move has not gone down very well with India, one of the biggest customers of oil in the region. Indian Petroleum minister did not mince his words when he said the move was confusing for the region.

At the height of the pandemic last year, Saudis cut down on the crude oil price for Asia, while maintaining its output in order to supply the region with the commodity.

The sudden policy reversal by Saudi Arabia has caught India unguarded as the prices at the pump started rocketing after hearing the news.

The Indian minister even warned that unilateral moves of this kind may force India to look for renewable sources to complement its energy needs.

The rise of oil price has, meanwhile, prompted the shale oil producers to get back to action. The members of the OPEC may hope that the campaign promise made by Mr Biden to ban fracking ban on federal lands, could potentially slowdown the flooding  the markets with excess oil.

All in all, OPEC has to walk a tightrope: on one hand, its members have to shore up their economies with oil revenues; on the other hand, it cannot let the hope of global economic recovery go up in smoke by being too ambitious in pursuit of lost revenue.

 

 

 

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