Amazing recovery of the price of crude oil

The price of crude oil has been rising for the whole week, having suffered a 15% loss in the first three week in August.  The fall of price by almost $11 a barrel made some pundits predicting a new crash, something that did not materialise.

One of the main factors that sent the price of crude oil on a downward spiral was the concerns about the health of the Chinese economy, coupled with the new outbreaks of the Delta variant of the Coronavirus.

As for the new wave of the pandemic in certain Chinese cities, the authorities appeared to have contained the spread successfully. Unlike the Western countries, China uses iron-hand measures to keep the threat at bay and it often works.

Even during the first wave of the pandemic, that was the case as far as China was concerned, despite it being the epicentre of the global catastrophe.

In proportion to the success on the ground, the major Chinese cities are limping back to economic activities, with the new-normal being on the horizon. That means, the traffic will be back on the roads and so will be the demand for the petrol and diesel.

The scenario of outbreaks of the Delta variant of the Coronavirus was not the only issue that worried investors in the crude oil markets, as far as China was concerned; it was the lower-than-expected growth in China that spooked the markets in equal measure.

At present, there is a significant rift between China and the West and it shows no sign of calming down. In addition, a separate axis of discontent is growing between China and its assertive neighbours such as Japan, South Korea, Vietnam and the Philippines.

Although the Chinese exports have not suffered significantly due to the animosities between China and the countries in question, it is not the same with Australia; the tit-for-tat measures are affecting the lucrative markets in both countries.

China suffered bruises too in light of evolving trading disputes. Huawei, the well-known Chinese mobile brand, announced this month that its consumer business lost over 47% revenue in the first half of 2021 – a severe blow to the business sentiment in China.

In order to mitigate the impact of external factors on its economy, it was reported that China tapped into its vast strategic petroleum reserves as a temporary measure to dealing with rising oil prices.

India, Japan and the US have been resorting to the same measure as well – for the same reason.

Since it did not bring down the price of crude oil to a level that the world hoped for, the White House asked the OPEC+ to increase the production. The OPEC+ says it will stick to the increase in production by 400,000 bpd, a figure agreed upon by the members; the group has not rejected the plea by the US outright – for obvious reasons.

Kuwait, has expressed its reservation about increasing the output, though. That means, the members of the cartel do not see eye to eye when it comes to the sensitive issue of increasing output that inevitably brings the price down.

The talks on reviving the JCPOA, meanwhile, show no sign of resuming. On the contrary, it suffered a serious setback when President Biden told visiting Israeli prime minister that the US had other options at its disposal, if the diplomacy fails – without specifying what they were.

The latest remarks by President Biden did not go down very well in Iran. The Iranian Supreme Leader hit back by saying the former was not different from his predecessor, President Trump.

In light of the latest political rift between the US and Iran, the prospect of Iranian oil reaching the market, let alone flooding, is becoming as unrealistic as it was a year ago. In short, there is not going to be a supply glut that traders and investors feared in the near future.

All in all, the crude oil price will regain its lost momentum in the coming weeks even if the pandemic raises its ugly head again with yet another wave of outbreaks.