The price of crude oil fell on Monday and the factors
that we thought behind it appear to be at play.
In my column on Sunday, I raised the issue of the
price of oil on Monday in the current circumstances.
As of 11:00 GMT, WTI and Brent recorded steep fall of
4.14% and 3.96% respectively; the price of two commodities were at $65.47 and $67.93
respectively.
The primary cause of the fall is, of course, the
surging infections of the Delta variant of the Coronavirus across the globe
regardless of the success of the vaccinations; relatively low number of deaths,
however, shows that the vaccines do offer some form of defence while keeping
the danger to lives at bay.
The rising infections in the US are of particular
concern for the crude oil markets; not only is it the largest consumer of the
crude oil, but also is the largest producer in the world – the most important
player in the market.
The latest data from the EIA, US Energy Information
Administration, clearly showed a build-up of US crude oil inventories; it shows
that the traffic is not back on the roads as much as the investors hoped;
production capacities may have dropped too due to reduced movement of people owing
to the fear of getting infected.
There are secondary causes too.
In China, the second largest crude oil consumer in the
world, meanwhile, the infections are again on the rise and more than 40 cities,
some of which are major, are in strict lockdown; in addition, there are clear
signs that the Chinese economy has slowed down despite the reports to the
contrary in the past few months, a development complicated by growing, geo-political
bickering.
At present, the political tension in the Middle East
is reaching its peak, followed by two major maritime incidents in the Gulf of
Oman.
Although incidents of this kind involving tankers
and even warships were nothing new, the loss of lives of two crew members made
the two incidents stand out from the rest.
Since Israel vowed retaliation, its form and scale
remains only to be guessed in the volatile region, where politics at present is
evolving faster than it has been ever before, with loyalties being shifted in
an unprecedented way.
In normal times, tension on this scale in the region
inevitably leads to the rise of crude oil price: we do not live in those times,
though; we are in the middle of a once-in-century pandemic and its impact far
outweighs the concerns about supply disruption, despite the Strait of Hormuz
being the passage for the 5th of global crude oil movements.
In these circumstances, the crude oil markets need a
strong form of a catalyst to revive its dormant position; judging by the recent
price fluctuations, it is clear an impetus of that nature can never come from
endless data crunching alone.
