The two main factors that have been dominating the
crude oil markets this week are the uncertainty over the OPEC+ outcome today at
the ministerial meeting of the block and the significant drop in the US crude
oil inventories for the week ending June, 25.
The JTC – Joint Technical Committee – meeting was held
on June, 29, in which the market conditions and supply issues were discussed in
depth, prior to the ministerial meeting, scheduled for today.
There are reports of disagreements about an increase
in the output, though; Russia along with its regional ally Kazakhstan, for
instance, wants to increase the production, citing the fears of having high oil
price in the long run; most of the OPEC+ members may be holding the same view
as a come-back made by the US shale oil sector could place the price of oil
back on a downward spiral.
In addition, the price of crude oil has gone such way
above the break-even point of Russian producers that Russia wants to cash in on
the current boom; the West has imposed some sanctions on Russia and its economy
is suffering.
Saudi Arabia may not be holding the same view,
though. On one hand, the break-even point, as far as oil produced in Saudi
Arabia is concerned, is much higher than that of Russia; on the other hand, its
main revenue still comes from crude oil exports; to benefit from
diversification of the economy will take years, if not decades.
In another development, before the latest OPEC+ meeting, the Secretary
General of the OPEC+ held a meeting with Indian oil minister via videoconference.
Although we do not know anything other than the pleasantries
exchanged between the duo, the Indian minister must have raised the issue of
the supply of crude oil into the markets.
In India, the price of oil at the pumps are on the
rise at an alarming level, causing a
major headache for the Modi-government, in addition to the things it has to
deal with on many other fronts.
It is highly unlikely that the OPEC+ would ignore
the concerns of India, as it’s the third largest consumer in the world; in
addition, India remains a close regional ally of the Middle Eastern oil
producers for decades. India’ concerns resonate with those of the developing
world and to a certain extent, the developed world too.
In this context, the likelihood of an increase in
the output by the OPEC+ has never been higher. The crude oil markets have been
watching this development – and the potential consequences - closely for weeks.
The US crude inventories, meanwhile, fell again by a
substantial amount, recording the sixth successive drop. It’s an indication
that the demand is back on track. The report released by the EIA, US Energy
Information Administration, on Wednesday showed a drop by more than 6.7 million
barrels from the previous week.
The sentiment in the crude oil markets is
oscillating between the two factors in seeking equilibrium at present and will
continue to do so unless something dramatic comes out of the OPEC+ meeting
today.
