Oil Markets: the US responds to Saudi concerns about the global oil supply in the wake of drone attacks

 

weekly oil price

 

Oil price that showed a downward trend up until Thursday, this week, stated going up at a modest pace on Friday with a brief dip during the day, when the Saudi oil facility near capital Riyadh were attacked by Houthi rebels of Yemen.

Saudi Arabia admitted it came under attack and the situation was under control; they went on to say that the damage was negligible; it, however, could not stop the ripple effect of the negative sentiment from spreading across the crude oil markets.

Since the attacks of this nature are frequent and the damage remains relatively insignificant, the markets seem to be suffering from ‘drone-fatigue’; the subdued, short-lived impact on the markets just reflects it.

After the latest attack, unlike in the previous attacks, Saudi Arabia warned the international community that the global energy supply would be under serious threat in the face of these attacks; it’s, in a certain sense, a thinly-veiled accusation against the key global players for not taking the threat from the Houthis on its oil facilities seriously.

This time round, however, Saudis seemed to have got their calculation right; the Biden administration condemned the Houthis for the attack and putting global energy supply under threat.

Saudi Arabia’s determination to keep the crude oil price at the current level at the expense of the weaker economies of the developing world did not win it any friends in the block; when its main source of income is under threat, the Kingdom may have realized it needs friends on the political front to keep the drone and missile threats at bay.

In this context, it may relax the output cuts in the coming months so that the struggling nations in the developing world can breathe a sigh of relief, at least until they recover from the severe impact on their economies due to the pandemic; most of those countries do not have fossil fuel resources of their own and they rely on the exported crude oil to meet their energy demands.

Moreover, there are signs that the other key players of the global crude oil chain will be at their respective positions in due course when the corresponding political winds die out gradually: the interest shown by companies to reinvesting in Venezuela, the oil boom in Libya and the less-hardened position of Iran lately, when it comes to the Nuclear Deal clearly can create a cushioning effect on the supply side of the crude oil.

There are other worries that grip the markets too: in Germany, France, Italy and Poland, for example, there is a strong possibility of going back to lockdowns; the concerns expressed by certain countries over the side-effects of the AstraZeneca vaccine may play into the hands of vaccine-deniers which could potentially slow down the successful vaccine drive against the Coronavirus, to name but a few.

jet fuel demand - EIA


The latest news from the airline industry is not encouraging for the oil markets either; the EIA, the US Energy Information Administration, in its latest report, says that the jet fuel demand will not pick up as fast as we wish that it will.

All in all, the cumulative impact on the supply side is not something that the OPEC+ can ignore, when they make their calculations for the next crucial meeting in April. Otherwise, the ground realities will haunt them for months to come.

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