Oil Price: disappearing glut and strong demand to keep the price at a sustainable level


crude oil futures: oil demand and price growth

The IEA, the International Energy Agency, caused something more than a stir in the oil markets yesterday when it said the kind of things that the investors in the sector should pursue if they really want to see net-zero-goal by 2050; it says this year should be the last year for investing in the oil sector!

Of course, it has come under immense criticism for this aspiring goal and the corresponding deadline, which most in the sector, believe as a line drawn in the sand.

Despite the debatable ambition, the demand for crude oil is growing as the US and some parts of Europe are reaping the benefits of the accelerated vaccine rollout; the industries are back at work in full swing and vehicles are back on roads.

Although the grim situation in India, exacerbated by Cyclone Tauktae, shows no sign of a respite, the investors are hopeful it will be back to normal in due course, as did in the US at the beginning of the year; on its part, India is also trying to mimic the US and the UK in getting vaccine rollout on track, despite the logistics being very challenging in a vast country of its size.

The demand of crude oil in India, for obvious reasons, is very low and the refineries have cut down on imports. Saudi Arabia, however, a main exporter to the region, brought the price down in order to help Asia in its recovery efforts against the pandemic.

The fall of price, on the other hand, can be an incentive to the region too to buy more oil than they really need in the short run and then store in for a rainy day; the region has done this before during the first wave of the pandemic, when the prices nosedived.

On another positive front, according to the latest reports, the oil glut that has been building during the pandemic, has almost gone down to the pre-pandemic level.

In addition, there are signs that a ceasefire agreement will be reached between the warring factions in the Middle East, brokered by Jordan and Egypt that still maintain steady diplomatic relations with the Jewish state.

In short, the positive sentiments in the oil sector are strong enough to eclipse the anxiety caused by the latest insights by the IEA.

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