How will crude oil markets react on Monday to diminishing Delta factor?

 

Analysts are keen on watching the crude oil markets on Monday, especially after a lacklustre performance during the past few days, despite a substantial drop in the US crude stocks.

Both, the EIA, US Energy Information Administration, and the API, American Petroleum Institute, reported larger-than expected crude inventory fall. The figures were 6.4 million barrels and 1.3 million barrels respectively.

In addition, the US oil rig count shows an increase as well, having been in passive mode for months.

The movement of oil prices on the investors’ screens, however, did not reflect the usual effect associated with such a drop. On the contrary, for the most part on Friday, the crude oil price remained red in the screens of analysts and investors alike.

Since the Delta variant of the Coronavirus appears to be on the wane, having wreaked havoc in the world, especially in Asia, analysts hope the region will put the crisis behind while taking the resilience in its stride. That means the demand will take up wings and emerge from the ashes of the global catastrophe.

During the past few months, a relatively new trend emerged among the major crude oil importers, when they felt the price of oil was far too high; they started tapping their strategic oil reserves, which are there for an emergency such as a war or a major weather event; the countries in question do not keep it as a well-guarded secret either.

The trend has forced analysts to take the phenomenon into account before doing their calculations - as never before. The importers in question bought crude oil on the cheap when the price crashed in the second quarter of 2020; by tapping them as if being in an emergency, the countries hope to cushion the impact of rising oil prices on their respective economies.

The other factor that plays the economic equivalent of the bogeyman is the possibility of Iran coming back to the crude oil markets as a normal player.

Both analysts and investors are worried about the direct impact on the crude oil supply, in the event of Iran coming back to the markets: on one hand, Iran has never stopped producing crude oil, because of the existence of sanctions; on the other hand, the risk of selling crude oil in large volumes on the grounds of covering past losses will be there,

 against which not many will be argue.

The level of anxiety over Iranian factor went a notch above this week, when Rafael Grossi, the director general of the IAEA, International Atomic Energy Agency, paid a visit to Tehran and expressed the hope of reviving the JCPOA, 2015 nuclear deal.

The emotions against the deal, however, are growing in the region as never before. Both Sunni Arab states in the region and Israel vehemently oppose the revival of the JCPOA in the current form without Iranian nuclear activities being subjected to rigours, regular checks by the IAEA; Iran sees the move as a well-hatched conspiracy against it by what it calls ‘West Asian regimes’.

The removal of the US air defence system and the associated Patriotic missile batteries from Saudi Arabia worried the crude oil markets last week. Understandably, in the absence of such a system, Saudi oil facilities are vulnerable to Houthi drones and missiles, which in turn can disrupt the crude oil supplies from the world’s top exporter; it has happened before.

There was a drone attack this week too that Saudis managed to intercept in time and destroy. Since some of the major Saudi oil facilities are just less than 100km away from the common border between the Kingdom and Yemen, the combination of danger and anxiety is palpable in the former.

All in all, analysts will take these factors into serious account before making predictions, when markets open tomorrow in the glare of evolving uncertainties.