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Hareesh V
Crude oil reached its highest level in three and a half years in the past week. Oil prices have rebounded since 2016. The momentum continues, despite concerns over the US-Allied trade dispute, which has plummeted global stocks and commodities.
The Organization of the Petroleum Exporting Countries and other major producers, including Russia, reduced daily crude oil production by 1.8 million barrels. Supply disruptions due to geopolitical tensions, record global demand and the positive outlook of badysts and investment banks have fueled the dynamics of the oil market.
However, the recovery in momentum has been gradual with the reduction of supplies due to OPEC. Shale oil production is at its peak in the United States, with refineries reaching their highest average capacity utilization due to record global demand. At present, the United States is the second largest oil producer behind Russia and its stocks have continued to decline.
Recently, OPEC and its allies agreed to increase their daily production limits at their last meeting in Vienna. In the context of calls from the United States, China and India to increase the oil supply in order to stabilize the market, OPEC has decided to increase its production. However, the group has not announced a clear target for the same thing.
The improvement in production benefits Saudi Arabia to a large extent as most of the other member countries are currently pumping oil close to capacity or are losing production for a variety of reasons. After the OPEC meeting, the results had initially limited the impact on prices. However, prices have risen rapidly, with WTI climbing to $ 74 per barrel, its highest level since November 2014.
In the expectation that the proposed increase will not offset the global supply gap , the United States calls on countries to reduce their imports from Iran. Brent Asian crude oil, which traded at a higher price than WTI due to concerns about OPEC supply, reversed the trend after the decision by the company. OPEC to increase its production. The ICE Brent gross premium over the NYMEX WTI was about $ 11, the highest in over 3 years, before dropping to $ 5.
Following international prices, Canadian crude prices reached their highest level since September 2014. Aside from overseas factors, the weakening of the national currency relative to the dollar has supported crude oil prices in the Indian market. The rupee hit a record Rs 69.09 against the dollar last week
In the future, increased instability in the Middle East worries the oil market. Rising geopolitical tensions are putting pressure on oil. Growing concerns over US relations with major oil producers like Iran and Venezuela are threatening the market. The United States demands that all countries stop buying crude oil from Iran, the third largest oil exporter of OPEC, by November, raising concerns as to the seal of the offer.
The threat of a trade war between the United States and its allies could also affect sentiment. The continuous positive feeling is likely to spread unless there is a fundamental change.
If WTI is constantly trading above $ 72 per barrel, it may give rise to more upside. A reversal of trend is only expected on a fence below $ 64 per barrel
Disclaimer: The author is Head, Commodity Research at Geojit Financial Services. The opinions and investment advice expressed by the investment expert on Moneycontrol are his own and not those of the site or its management. Moneycontrol advises users to check with certified experts before making any investment decision.
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