Oil price seasaws and Covid infection rates drive it

 

It is now explicitly clear that the falling crude oil price is directly related to the spikes in Coronavirus infections across the world, regardless of the region.

As of 09:15 GMT, the WTI and Brent stood at $68.05 and $70.29 respectively, having fallen sharply for the past 3 days; the rate of fall has gone down and the prices may recover as the day wears on.

The unexpected build-up of the US crude oil inventories by 3.6 million barrels for the week ending July 30 has taken its toll on the crude oil markets; before the EIA released its latest data, the expectation of the analysts was a draw of 2.9 million barrels.

The significant rise in the US inventories reflects the concern among the public about the steep rise in infections across the US.

Although the combination of vaccines give an individual some form of defence against the virus, the spread of the disease, even in the developed world, clearly indicates that the former is not a silver bullet; it, however, has brought down the rate of deaths significantly, unless the individuals in question have existing, chronic health issues.

Analysts were surprised that the sudden rise in tension in the Middle East, involving Iran during the past few days, did not lift the price of crude oil up; usually, the price goes up whenever markets perceive a threat to its supply – especially along a passage where a fifth of the global needs flows through.

It looks like the rising Coronavirus infections outweighed the supply concerns. Moreover, the OPEC+ is adding 400,000 bpd, starting from August until December.

The rising infections in China and Japan may have brought down the imports of crude oil by both countries. In China, meanwhile, the growth has slowed down as well, skewing the import trend even further away from steady rise that the markets have been hoping for months.

Clearly, in the face of unexpected developments, the Middle Eastern producers have started feeling the pinch with falling revenues.

Perhaps, this may be the reason that Saudi Arabia increased the price of crude oil for Asia – once again; this may not go down very well with its customer base in Asia at a very difficult time, as it has the potential to disrupt the fragile growth in the region.

On political front, meanwhile, analysts are watching the inauguration of the new Iranian president, Abrahim Raisi. In his first policy speech, he is expected divulge his plans to get the sanctions lifted in return for inhibited nuclear activities; at present, the prospect of reviving the JCPOA, 2015 nuclear deal, appears to be pretty unrealistic, given Iran’s alleged involvement in two major maritime incidents.

Since Mr Raisi knows that he could not stimulate the economic growth without coming back to international oil markets as a legitimate player, he may take some positive steps to revive the nuclear deal and calm down the tension in the region at present.

Who wants to be sandwiched between international pressure and local dissent that stems from lack of basic amenities simultaneously at the start of a maiden presidential term?

In short, the stakes cannot be higher for Mr Raisi after today’s inauguration.