The investor
lethargy continues in the oil markets in proportion to the degree of negative sentiment
that looms over it.
The early drop
in price in Brent crude and WTI crude, 1.35% and 1.6% respectively on Monday,
just reflects the current pessimistic mood in the markets.
With the
production cuts initiated by the OPEC having no desired effect on the crude oil
price, Saudi Arabia cut prices to Asia, its largest market by region, in order
to address the dwindling sales.
On the
ground, meanwhile, data shows that refineries cut output owing to weak demand.
For instance, in the US, the world’s biggest oil user, the price of gasoline
dropped to its lowest level since 2004 at the weekend before its Labour Day
Monday, according to the EIA.
The situation
in China on this front is no different: the country that went on an accelerated
buying spree during the pandemic, cashing in on the record-low prices, has
since backed down; the storage facilities appear to be in full capacity and
lots of tankers remain at ports with crude supplies.
During the
pandemic, China’s relationship with the West, especially the US, deteriorated with
the accusations ranging from ‘poor handling’ of the coronavirus crisis to its
ambitions on the expansion of 5G networks.
Analysts
believe that this factor cannot be underestimated, because China is the world’s
second largest economy.
There is
more bad news for traditional oil producers, coming from the US. There are
reports of opening new oil and gas rigs, after a lull in activities; they may
have been encouraged by the rise in crude oil price in the last few months,
after the peak of the pandemic appeared to be behind us.
On a positive
note, there is still a possibility of lifting up the lacklustre sentiments in
the markets as a whole, if the governments collectively embark on giving
stimulus packages to the struggling sectors – as one way of recoveries.
They worked
in the past.
For
instance, in the aftermath of the global economic crisis in 2009, the UK
introduced such a mechanism to safeguard the car industry, which was very badly
struggling.
After the
9/11 attack, the airline industry was rescued by a similar attempt, when people
chose twice before flying on an aeroplane.
In short,
bold, timely measures have the potential to shore up the sentiments and get the
economies back on track in few months. It’s, however, only possible if the
powerful leaders leave aside the petty political inconveniences for a noble,
global goal.
