What triggered off the sudden fall of oil price on Monday?

 

Q1 GDP 2021

The price of crude oil unexpectedly stumbled on Monday despite the evidence of tightening supply and rapidly falling inventories. Both benchmarks, WTI and Brent fell by over 1.2 %.

As of 15:00 GMT on Monday, the price of WTI and Brent were at $73.50 and $74.64 respectively.

The crude oil price had a particularly bumpy ride last week: on Monday, the anticipated OPEC+ meeting did not take place; with that the agreement to supply 400,000 bpd for the period from August to December did not materialise.

The US crude oil inventories, meanwhile, fell by over 8 million barrels for the week ending, July 2.  The news of the substantial fall on Wednesday, understandably,  led to an increase in oil price on Thursday and Friday.

Despite the encouraging news on the demand front, the oil price fell on Monday, this week.

It looks like three factors are at play for the unexpected development: first, the predicted growth of the main global economies, according to the latest data, is far from strong; the growth of China, the world’s second largest economy, meanwhile, is estimated to be much lower than its impressive Q1 growth, according to Bloomberg analysts; the emergence of Delta variant of the Coronavirus in more than 60 countries hardly helped sustain the momentum of the markets that grew steadily over the last few weeks.

In addition, the growing dissension between the UAE and Saudi Arabia is becoming more than an unwanted distraction. Saudi Arabia, however, says that it has already honoured the contractual demands for crude oil from 5 buyers for August, while turning down the request to supply more, perhaps not to upset its obligations to the OPEC+.

In these circumstances, an accelerated, global vaccine drive appears to be the only workable catalyst to shore up the market enthusiasm – in the short run.

 

 

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