Oil Price: it is nearing the psychologically signifcant $100, a barrel!

 

The price of crude oil is approaching $100 a barrel and the geopolitical tension involving Russia and the West that shows no sign of abating will finally determine the psychologically important benchmark in the next few days.

As of 16:00 GMT, the price of WTI and Brent stood at $93.62 and $94.72 respectively.

With the price of crude oil reaching a 7-year-old high and consumers feeling the pinch on many fronts, ranging from rising energy bills to steep increase in food prices, things cannot get any worse in the current circumstances for most people whether they live in the East or West – or anywhere in between.

All this happens when the world is still reeling from the once-in-a-century pandemic.

Although the OPEC+ agreed to keep producing extra 400,000 bpd in order to meet the rising demand, whether the members of the cartel live up to the individual contribution, remain to be seen; it has been the case in the past few months, citing lack of investment in the sector. In short, it is not a sacred covenant.

The US crude inventories, meanwhile, are falling steadily, signalling a strong recovery since the pandemic. The rise in crude oil price last week was inextricably linked to it.

The tension in the Eastern Europe has eclipsed the other potential threats to the supply of crude oil to the markets: the Houthi rebels have started attacking both the UAE and Saudi Arabia, while leaving both nations at the mercy of missile interception systems provided by the US; the rebels keep targeting the oil fields, in addition to other civilian targets, in order to maximize the damage.

Of course, the Saudi-led Arab coalition keeps bombarding what they call, the Houthi targets, but to no avail; the Houthis started sending out both missile and drones almost on daily basis. Since the former has no appetite to put boots on the ground, military analysts wonder how effective the aerial bombardment would be, as the concerns mount over collateral damage.

To make matters worse, the relations between the UAE and Saudi Arabia deteriorated with the new US administration over a range of issues; the latter even declassified the Houthi rebels as a terrorist group – much to the dismay of the former.

The talks over reviving the JCPOA, meanwhile, just swings between hope and despair with no sign of a breakthrough either. If there is a breakthrough, however, the dynamics of the crude oil markets will change overnight – for obvious reasons. At present, the signatories just blow hot and cold over a possible, outcome.

In these circumstances, the supply side of the oil equation is under threat and unless a miraculous breakthrough happens along the border between Ukraine and Russia, crude oil price would break through the ceiling that had been unthinkable a few months ago - $100, a barrel.