What caused the downward trend in crude oil price?


Weekly oil price - 3-point moving average

Weekly crude oil price, that showed an upward trend up until March, 2021, has suddenly turned downward, when 3-point-moving averages are taken into account.

This is not something that analysts anticipated, especially when there are clear signs of global demands going up. Moreover, in the US, there were strong indications of an economic recovery in proportion to the scale of the vaccine rollout.

The increase in the crude oil output by the OPEC+, despite done under global political pressure, also signalled optimism on the part of the cartel that the demand would finally be on the rise.

In addition, in China, the world’s second largest consumer, the economy shows a steady growth and the crude oil demand is going to go up at a faster rate in the coming months.

The reliable positive news on multiple fronts clearly eclipsed the negative sentiment that stemmed from the upsurge of new Coronavirus infections in Europe and Asia. As a result, there was no dramatic fall in oil price, a repeat during the same period last year.

In this context, it is hard to figure out what causes the downward trend in the price of crude oil, unless you take into account the Iranian factor.

Iran and the US are finally talking to each other through intermediaries and at least this prospect was unimaginable a few months ago.

The two sides are still poles apart; the stakes, however, cannot be higher for both sides for not coming to a mutually acceptable compromise.

With the presidential elections in Iran just two months away, on one hand, Iranians cannot afford to lose a moderate statesman in their hour of need. On the other hand, the US cannot let this opportunity slip away before a hardliner takes up the reins in Iran.

Perhaps, the oil markets know what would happen to the supply side of the oil equation in the event of the 2015 nuclear agreement being revived – the arrival of significant amount of crude oil to the markets.  

This is the only factor that could account for the fall of the price of crude oil in these few weeks.

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