Crude oil markets: uncertainties gradually subside, without derailing the recovery

 

WTI and Brent  crude price in August

The weaker dollar managed to eclipse the psychological hindrances faced by the investors this week that in turn resulted in a diffident rise in oil price, which saw a significant fall in August.

As of 18:00 GMT, the price of WTI and Brent were $69.29 and $72.61 respectively, recording the modest rise.

Oil price in August


Analysts expected significant, steady rise in light of larger-than-expected UScrude inventories. Both the EIA, US Energy Information Administration and the API, American Petroleum Institute, released the weekly data showing falls in crude stocks by over 7 million barrels and 4 million barrels respectively; asfor the latter, it was almost twice as big as what had been estimated

Neither the alarm over a new wave of the pandemic nor the fact that the US being at the jaws of nature’s wrath in terms of wild fires and tropical storms has brought the industrial activities and the road traffic to a grinding halt; the inventory draws explicitly show that it was not the case.

Even the PR disaster that stemmed from the abrupt US withdrawal of troops from Afghanistan had little impact on the long-term market sentiments.

When the latest OPEC+ meeting ended on Wednesday, just in 23 minutes, analysts thought the subtle warning from the OPEC+ over a possible surplus in 2022 would dampen the markets. It did not materialize either.

The apparent unity of the group, on the contrary, boosted the investor morale, because the former went through a serious crisis after a similar meeting in July, when the two Middle Eastern heavyweights fell out over the calculation of baseline with regard to the oil production.

The OPEC+ will be boosting the output by 400,000 bpd or even more due to international pressure, especially from the US. Its warning over a potential supply glut next year, perhaps, may have been aimed at those who wanted to see a bigger hike in production.

The oil producers must have been buoyed by China’s ability to contain the new variant of the Coronavirus, the Delta variant, from spreading, which in turn led to the revival of the industrial, activates and transport of many forms.

The following chart shows the Indian oil imports during the past few months:


source: tradingeconomics.com

Both China and India, the world’s first and the third largest oil importers had seen the imports of the commodity in decline in the past few months. In India, the fall in crude imports in July was 12.5%, month-on-month basis - to just 3.4 million barrels per day.

The cumulative slump in imports affected the crude oil producers, especially those who are from the Middle East.

The Iranian oil sector, meanwhile, hopes that the JCPOA, 2015 Iran nuclear deal, will be revived at some point in the near future – against the all odds; Iranians are producing crude oil at a faster rate in the hope of selling in the international crude oil markets as a legitimate player.

The new Iranian oil minister did not mince his words when he said that Iran would sell as much as it can in the events of the sanctions being lifted in order to compensation for the billions of losses it suffered due to US-led sanctions.

It shows the determination of the Iranians to make up for the losses in revenue, even it means being at the loggerheads with the rest of the members of the OPEC+.

With the country being on the brink of yet another Covid-19 wave, Iranian authorities have very little room for manoeuvre, when the economic cost starts to bite. While making matters worse, the water shortages and power cuts have added many more headaches to the authorities at this difficult time.

Despite the multiple uncertainties, the global demand for crude oil will remain strong in the next few months in proportion to the increasing economic activities across the world. Therefore, in spite of price fluctuations, yet another oil price crash, feared by some analysts,  is just next to impossible.  

 

 

 

Comments

  1. Crude oil is a strategic asset. The West is disarming itself of energy resources at a time of increasing Asian and East European military aggression. This bodes poorly for crude prices, while disabling effective intervention of oil majors to address carbon reduction strategies. And may encourage militarism in East Asia and the Middle East by seeming indifference of NATO leadership.

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