Crude Oil - Traders fear Supply Shortages
Yesterday the price of oil originally saw a strong increase in value taking the price up to $112.59 by the afternoon. The price was the highest we have seen in 2 weeks but momentum collapsed after the release of the latest oil inventories. After hitting the 2-week high the price declined by 3.55% and is currently hovering at $108.67
The price has crossed below yesterday’s low price and is also lower than Tuesday's price wave. However, the price has now moved into a sideways trend with little volatility and direction. This is most likely caused by traders waiting for further clarity after such a strong price movement. Currently, the price is ranging between $107.73 and $109.07.
The market’s attention is mainly fixed on the political aspect between the G7 countries and Russia. During a meeting between members over the past couple of days, it was decided to review different ways in which these countries can forcibly limit prices for Russian oil. However, this can potentially increase investors' fears of an additional shortage in the energy market. Traders fear the move will further pressure supply as the action taken by the west can have many repercussions.
Yesterday officials from Russia already advised that the country will not trade their commodities at a loss under any condition, even if it results in hurting the economy further. Therefore any attempts to forcibly limit prices may lead to Russia's refusal to supply oil to the G7 countries. This is a possibility as Russia is able to redirect exports to Asia and African countries. This would be a dangerous move by the west as there is nothing to replace Russian energy carriers. It was previously believed that the west could simply buy increased supply from Saudi Arabia and the UAE. However, according to experts, these two regions will only be able to increase production by a maximum of 150,000 barrels per day. The figure is not even close to covering the demand.
In addition to the above, the price was also influenced by the Oil inventories which were released yesterday afternoon. This week the Oil Inventories were much lower than expected by the market. The inventory was expected to be confirmed as -900,000 barrels but was announced as -2,800,000 barrels. The lower level of supply pairs with supply fears and could potentially support prices, however, traders are still cautiously looking at yesterday’s decline.
The market will now turn its attention to the OPEC meeting this afternoon. The meeting is scheduled in order to discuss a range of issues regarding energy markets and, most importantly, agree on how much oil they will produce based on the market demand and their capabilities. Traders will be scrutinising any comments made by the OPEC representatives.
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