Although oil price dropped this week, the fall is
not that significant, when compared with what it was last week.
The drop in price, however, has rattled the markets
somewhat, as the factors which usually influence the oil price were not in
favour of an unstoppable rally.
For example, the US crude oil inventories have gone
up, deviating from the trend that had been the opposite for a few weeks. In
addition, the high infection rates – and the deaths too – both in the US and
Europe have finally had an impact on the investor-confidence.
The fear of stricter lockdowns in China may have
played a role too, as the latter is a key player when it comes to global
demand.
In this context, the twin move by the UAE and Saudi
Arabia to cash in on the situation does not seem to be working in the long run;
not only did they increase the crude oil price for Asia, but also cut down on the
output, while warning the US shale producers not to flood the market with excess
oil; whether the latter will heed the call is an entirely different matter.
Although the move by the OPEC+ members are
understandable, the logic behind pursuing a production cut of this magnitude,
especially by Saudi Arabia that amounts to 1 million barrels per day, is open
to debate in the current economic climate.
As far as traders are concerned, the crude oil price
that fell during this week, may not see yet another plummeting scenario, mimicking
simple gravity.
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