Oil Price: the need of the hour is a strong catalyst, not endless data crunching

 

Covid infections in the US and oil price - August

The price of crude oil fell on Monday and the factors that we thought behind it appear to be at play.

In my column on Sunday, I raised the issue of the price of oil on Monday in the current circumstances.

As of 11:00 GMT, WTI and Brent recorded steep fall of 4.14% and 3.96% respectively; the price of two commodities were at $65.47 and $67.93 respectively.

The primary cause of the fall is, of course, the surging infections of the Delta variant of the Coronavirus across the globe regardless of the success of the vaccinations; relatively low number of deaths, however, shows that the vaccines do offer some form of defence while keeping the danger to lives at bay.

The rising infections in the US are of particular concern for the crude oil markets; not only is it the largest consumer of the crude oil, but also is the largest producer in the world – the most important player in the market.

The latest data from the EIA, US Energy Information Administration, clearly showed a build-up of US crude oil inventories; it shows that the traffic is not back on the roads as much as the investors hoped; production capacities may have dropped too due to reduced movement of people owing to the fear of getting infected.

There are secondary causes too.

In China, the second largest crude oil consumer in the world, meanwhile, the infections are again on the rise and more than 40 cities, some of which are major, are in strict lockdown; in addition, there are clear signs that the Chinese economy has slowed down despite the reports to the contrary in the past few months, a development complicated by growing, geo-political bickering.

At present, the political tension in the Middle East is reaching its peak, followed by two major maritime incidents in the Gulf of Oman.

Although incidents of this kind involving tankers and even warships were nothing new, the loss of lives of two crew members made the two incidents stand out from the rest.

Since Israel vowed retaliation, its form and scale remains only to be guessed in the volatile region, where politics at present is evolving faster than it has been ever before, with loyalties being shifted in an unprecedented way.

In normal times, tension on this scale in the region inevitably leads to the rise of crude oil price: we do not live in those times, though; we are in the middle of a once-in-century pandemic and its impact far outweighs the concerns about supply disruption, despite the Strait of Hormuz being the passage for the 5th of global crude oil movements.

In these circumstances, the crude oil markets need a strong form of a catalyst to revive its dormant position; judging by the recent price fluctuations, it is clear an impetus of that nature can never come from endless data crunching alone.

 

 

 

 

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