The price of crude oil has been rising for the whole
week, having suffered a 15% loss in the first three week in August. The fall of price by almost $11 a barrel made
some pundits predicting a new crash, something that did not materialise.
One of the main factors that sent the price of crude
oil on a downward spiral was the concerns about the health of the Chinese
economy, coupled with the new outbreaks of the Delta variant of the Coronavirus.
As for the new wave of the pandemic in certain
Chinese cities, the authorities appeared to have contained the spread
successfully. Unlike the Western countries, China uses iron-hand measures to
keep the threat at bay and it often works.
Even during the first wave of the pandemic, that was
the case as far as China was concerned, despite it being the epicentre of the global
catastrophe.
In proportion to the success on the ground, the
major Chinese cities are limping back to economic activities, with the
new-normal being on the horizon. That means, the traffic will be back on the
roads and so will be the demand for the petrol and diesel.
The scenario of outbreaks of the Delta variant of
the Coronavirus was not the only issue that worried investors in the crude oil
markets, as far as China was concerned; it was the lower-than-expected growth
in China that spooked the markets in equal measure.
At present, there is a significant rift between
China and the West and it shows no sign of calming down. In addition, a
separate axis of discontent is growing between China and its assertive
neighbours such as Japan, South Korea, Vietnam and the Philippines.
Although the Chinese exports have not suffered
significantly due to the animosities between China and the countries in
question, it is not the same with Australia; the tit-for-tat measures are
affecting the lucrative markets in both countries.
China suffered bruises too in light of evolving
trading disputes. Huawei, the well-known Chinese mobile brand, announced this
month that its consumer business lost over 47% revenue in the first half of
2021 – a severe blow to the business sentiment in China.
In order to mitigate the impact of external factors
on its economy, it was reported that China tapped into its vast strategic
petroleum reserves as a temporary measure to dealing with rising oil prices.
India, Japan and the US have been resorting to the
same measure as well – for the same reason.
Since it did not bring down the price of crude oil
to a level that the world hoped for, the White House asked the OPEC+ to
increase the production. The OPEC+ says it will stick to the increase in
production by 400,000 bpd, a figure agreed upon by the members; the group has
not rejected the plea by the US outright – for obvious reasons.
Kuwait, has expressed its reservation about increasing the output, though. That means, the members of the cartel do not see eye to eye when it comes to the sensitive issue of increasing output that inevitably brings the price down.
The talks on reviving the JCPOA, meanwhile, show no
sign of resuming. On the contrary, it suffered a serious setback when President
Biden told visiting Israeli prime minister that the US had other options at its
disposal, if the diplomacy fails – without specifying what they were.
The latest remarks by President Biden did not go
down very well in Iran. The Iranian Supreme Leader hit back by saying the
former was not different from his predecessor, President Trump.
In light of the latest political rift between the US
and Iran, the prospect of Iranian oil reaching the market, let alone flooding,
is becoming as unrealistic as it was a year ago. In short, there is not going
to be a supply glut that traders and investors feared in the near future.
All in all, the crude oil price will regain its lost
momentum in the coming weeks even if the pandemic raises its ugly head again with
yet another wave of outbreaks.
