What caused the significant fall in crude oil price on Wednesday? There may be more than one reason!

 

Fall in crude oil price Novermber 2021

The price of crude oil recorded a relatively sharp fall on Wednesday, defying the ‘prophesies’ of certain investment banks. As of 16:00 GMT, the price of WTI and Brent stood at $80.82 and $82.04 respectively, a fall of more than 3%.

The key reasons behind the fall of oil price may be the following:

  • China’s weak economic data for eight successive months
  • The fall of US crude inventories for six successive weeks
  • The tremendous pressure brought upon the OPEC+ members to increase the oil output
  • The flare-ups of the Delta variant – or sub variant – of the Covid-19 in many parts of the world

As for China’s economy, the authorities did not hide the fact that its economy continues to slow down, hit by supply chain issues, rising energy costs, power shortages and rising unemployment numbers.

China’s manufacturing PMI index fell by 0.4%, from 49.6% in September to 49.2% in October, according to the National Statistics Bureau of Statistics of China; it has been in decline for months in the aftermath of the pandemic, having recorded an impressive growth for years.

China's manufactures PMI Novemeber 2021

China, however, did not attribute the disappointing performance of the world’s second largest economy to the evolving political fallouts with its neighbours - and the West; its deteriorating relations with one of its immediate neighbours, India, for instance, is a case in point; since the latter is an important market, India can make a reasonable impact on the Chinese economy, although that may not be a hammer-blow.

The poor performance of one of China’s star companies, Huawei, for instance, is also due to the political manoeuvres, rather than economic reasons.

If China’s manufacturing sector continues to shrink, its impact on the crude oil markets will be huge, because China is the world’s top importer of the crude oil.

China is not the only country that is causing ripples in the crude oil markets, though. In the US, the crude inventories have been falling for six successive weeks, despite the vehicles being on roads and aeroplanes in the skies.

The latest data from the API, American Petroleum Institute, shows an inventory build-up of 3.59 million barrels, when the estimate was 1.567 million barrels.

Analysts believe the build-up of the crude inventories is partly due to the rising fuel prices.

The OPEC+ ministerial meeting, meanwhile, is going to take place on November 4, amidst the uncertainty surrounding the crude oil markets.

The individual members, especially from the Middle East, are under tremendous pressure to increase the production in order to rein in the prices. The OPEC+ has been resisting the move by justifying the status quo, on the ground of generating money for more investments.

It, however, may not be possible for the key members of the OPEC+to ignore the US pleas for ever, especially when the last of those is made by the world’s most powerful man on the planet, the US president; they will not be to do that at the expense of the security of the individual countries.

In this context, the ministerial meeting of the OPEC+, scheduled for tomorrow, is going to be an interesting one and analysts are closely watching the developments.

The fall in price of crude oil, perhaps, stems from the growing anxiety over the unsustainable price of the commodity as well, especially when the battered world tries to recover from the pandemic.

In addition, the outbreaks of the Delta variant of the Coronavirus show no sign of a let-up: in China, it has flared up in certain regions and in a few regions the officials urged people to stock up on food and essential items, something they downplayed a day later.

All in all, the ministerial meeting of the tomorrow’s OPEC+ meeting is going to be one of the most important gatherings of the cartel this year,  in determining the price of crude oil and the path that the members have to tread on, fulfilling its responsibility in the global energy sector.

 

 

 

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