Anxieties still loom over the crude oil markets despite strong demand

 

The oil price recorded a modest rise this week despite the significant drop in the crude stocks in the world’s biggest consumer of the commodity, the US.

Both the API, American Petroleum Institute, and the EIA, US Energy Information Administration, came up with the encouraging numbers that showed a consistent drop in the US crude oil inventories for the week ending September, 10.

In addition, the US oil rig count has gone up as well, having been in the doldrums for months.

Despite the demand being back on track, the slight rise in the crude oil price in the markets has baffled the investors and analysts alike.

On one hand, the countries across the world are coming to terms with the impact on their economies by the new Delta variant of the Coronavirus; on the other hand, the crude oil inventories are falling across the world.

Yet, markets chose to exercise caution rather than being buoyed by the statistics, which usually push the price up in the current circumstances.

This means the countries, especially the major consumers in the developing world, are worried about the rising oil price and its impact on the fragile economic growth in their respective countries.

Having learned the bitter lesson of futility while making multiple public appeals to the producers to increase the production, the countries in question have resorted to tapping their strategic oil reserves rather than buying at higher prices.

The markets have been sensing their pulse and are resisting to getting carried away by the factors that are in favour of raising the price of crude oil.

As far as the oil producers are concerned, especially those which are from the Middle East, a fear of over-supply hangs over the decision making bodies of these countries.

They are worried that Iranian oil may come back to the markets at any time in the near future, when Iran decides to revive the talks on the JCPOA, 2015 Iranian nuclear deal.

Despite the sanctions and its inability to sell in the open markets, Iran has been ramping up its oil production in the hope of becoming a normal player in the realm.

If Iran is allowed to sell, they will open the flood gates despite the risk of its immediate impact on the price, because the former just wants to compensate for the losses it suffered on many fronts due to the US-led sanctions.

The process of reviving the JCPOA got a further boost this week, when Rafael Grossi, the Director General of the IAEA, International Atomic Energy Agency, visited Tehran and expressed his hope for a new round of successful negotiations.

The relations between Shia-dominated Iran and Sunni-dominated Arab countries in the region, however, are far from cosy. On the contrary, the gap between them is frighteningly widening.

The Arab nations in the Middle East and Israel can potentially erect road blocks along the way to the revival of the JCPOA, citing their security concerns.

Analysts, in this context, prefer to watch the developments in the Middle East to going with the flow at present, leaving the investor in an uncomfortable lurch.