Crude oil price rose modestly leaving behind the
inexplicable fluctuations that we witnessed in the last few days.
The markets breathed a sigh of relief when OPEC+
announced that it will ease the production cuts gradually on Wednesday. What was
remarkable is the fact that the time it took for the ministers of the OPEC+ to
coming to an agreement in unison.
The ministerial meeting, known as the JMMC, unlike
the previous meeting that ended in acrimony over the baseline disputes, ended
in just 23 minutes. The apparent unity of the OPEC+ also a key factor in
lifting the clouds of gloom that had been hovering over the crude oil markets
for weeks.
Some investors were still anxious yesterday, though.
A day before the ministerial meeting, the JTC, Joint Technical Committee of the
OPEC+, depicted a picture of a surplus in the crude oil markets in 2022, in the
event of production cuts being reversed.
Analysts, however, started taking into account two
key indicators about the market conditions that showed encouraging signs about
the demand.
Both API, American Petroleum Institute, and the EIA,
US Energy Information Administration, released the US inventory data showing a
substantial drop in the US crude oil stocks, defying the initial market
estimates: the figures were 4.045 million barrels and 7.2 million barrels
respectively.
That means the demand of crude oil by the US
consumers has not been hampered by the new outbreaks of the Delta variant of
the Coronavirus. On the contrary, the demand has gone up despite the refinery
closures along Gulf Coast due to the Hurricane Ida – and panic across the
southern states of the US over the impact on multiple fronts.
Since the global outbreaks of the Coronavirus show
no sign of a let-up, the demand of crude oil may suffer to some extent in the
rest of the world, though.
In Asia the situation is still acute. In addition, even
countries that we thought kept the pandemic at bay by strict lockdown measures,
coupled with accelerated vaccine drives, are waking up to new reality; it’s
easier said than done.
Israel, New Zealand and Australia, for instance, are
battling extraordinary outbreaks across the respective countries.
On a positive note, China, the world’s second
largest consumer, appeared to have contained the outbreaks. It, however,
admitted that its economy, the world’s second largest, has slowed down in
recent months.
The pandemic in India, the world’s third largest
importer of crude oil, meanwhile, is still a cause for serious concern. In some
states, the rate of infection has gone up considerably in the last few weeks.
Of course, a surplus of oil in the markets will be a
disaster for the producers. At the same time, a price far above what is at
present in the current global economic circumstances may not be sustainable in
the long run.
Then, the oil producers will come under immense
pressure to ease the burden off the consumers. The key importers, as a last
resort, may even turn to their SPRs, the Strategic Oil Reserves, to deal with
the challenge of rising oil prices – at least in the short run – which in turn
could buckle the market-trends - the only outcome of which is just unnecessary chaos.
