Oil Markets More Animated by Geopolitics, Supply, and Demand / Commodities / Crude Oil
Crude oil prices closed yesterday neartheir 7-year highs. What do you think are the main price drivers prevailing forthis surge on crude oil prices?
GeopoliticalSituation
Crude oil prices closed yesterday neartheir 7-year highs, as an attack on an oil site in Abu Dhabi further strainedan already tense market. The concern about the deterioration of the situationbetween Ukraine and Russia, which has been occurring for several days, has beenovertaken by the attack on the infrastructures of the United Arab Emirates. OnMonday, an attack probably committed by drones blew up three tank trucks nearthe Abu Dhabi National Oil Company (ADNOC)’s reservoirs.
This strike, claimed by the Houthi rebelsin Yemen, killed three people and injured six others, without damaging theemirate's oil installations. Therefore, this attack increases the likelihood ofseeing production losses at a time when supply is already very tight. On theother hand, the spread of the civil war in Yemen could signal that a newIranian nuclear deal is out of the question anytime soon, thus depriving themarket of Iranian crude oil barrels since the Houthi rebels are indeed close toIran.
Still, in the Middle Eastern region,yesterday an explosion damaged an oil pipeline linking Iraq to Turkey throughwhich some 450,000 barrels of crude transit per day, thus cutting off flow fromIraq. This news has boosted prices, making them reach new records. It appearsnow that this Iraq-Turkey pipeline was back in operation earlier this morning,according to the Turkish public company Botas.
Supply/DemandDynamics
As the market worries about supply, OPEC+on Tuesday maintained its forecast for a rise in global demand for black goldin 2022, which would reach 100 million barrels per day.
Even the IEA has raised its forecast foroil demand this year and warned that the market could experience another yearof volatility if supply disappoints. According to the agency, total demand shouldthus reach a level close to 100 million barrels per day this year.
WTI Crude Oil (CLH22) Futures (March contract, daily chart)
Asyou can see, there is currently a lot going on in the energy markets tomaintain a high level of volatility. In particular, some fundamental driversand news of supply disruptions and geopolitical tensions often push pricessignificantly higher. However, it is also interesting to note that they do notseem to be falling back to their previous level once the issues are resolved orwhen the tensions de-escalate.
PS: Don’t forget to switch to theMarch 2022 contract (CLH22) for WTI Crude Oil.
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Thank you.
Sebastien Bischeri
Oil & Gas Trading Strategist
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