Oil Price: did the crude oil markets react to the US air strikes?

 

Weekly oil price in June

The price of crude oil fell on Monday morning in the Asian markets, which may show cascading effect in the European markets too during the day.

The early market reaction is not something expected; it is most probably a knee-jerk reaction to the air strikes carried out by the US in Iraq and Syria, targeting fighters of Iran-backed military group.

This is the second time since President Joe Biden came to power that the US carried out limited air strikes in the region.

On both occasions, the US attacks were in response to the drone and missile attacks by the fighters in question on the US bases in Iraq. The new US administration does not tend to retaliate immediately for such provocations; on the contrary, the US armed forces take time, analyse the targets and then carry out the attacks while minimizing the collateral damage; the choice of night hours is also an indication of minimizing the loss of civilian lives.

The Asian markets reacted as if the attacks were going to continue for some time. They, however, are targeted limited attacks.

At 09:45 GMT, the prices of WTI crude and Brent crude were $73.86 and $75.96 respectively.

The crude oil markets have better things to focus on rather than one-off US military attacks. The forthcoming OPEC+ meeting, scheduled on July 1, is a case in point.

The leading oil producers in the world are meeting virtually for their next monthly round of discussion, having studied the market conditions, global demand and of course, inevitable political connotations.

There is a clear indication that the group will increase its production for August while taking into account the grievances of customers, mainly from the developing world.

During the last meeting, in June, the group was cautious about the move, as the probability of Iran coming back into the crude oil markets was very high. In recent weeks, however, the optimism about an immediate return of Iranian oil has gradually receded, although signatories to the JCOPA, 2015 Iranian nuclear deal, maintain the guarded optimism.

In another development, the US shale industry does not show any enthusiasm to make a quick comeback in order to cash in on rising oil prices. The industry, having learned a bitter lesson in the past, prefers exercising caution to rushing to start new oil rigs. The slow rise in the US rig count reflects the new thinking in the industry.

All in all, there is no significant factor looming over the crude oil markets to hamper its upward trend – apart from an increase in the output by the OPEC+, that could be temporary too.

 

 

 

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