As the tumultuous week in oil trading comes to a close, it leaves behind an unmistakably upward trail. Despite a tumultuous week, Friday witnessed the energy commodity recording its fourth week of consecutive gains, fueled by a nearly 2 percent daily growth due to the ongoing supply crunch and intensifying Russia-Ukraine hostilities.
An Upward Trajectory Amidst Supply Shortages and Geopolitical Tensions
Brent, the international benchmark for oil prices, marked an elevation of $1.43, seeing a 1.8 percent increase, settling at $81.07 per barrel. This uptick prompts a weekly gain sitting around 1.2 percent. West Texas Intermediate (WTI), in parallel, registered a $1.42 increase, contributing to a 1.9 percent rise, inching to $77.07 per barrel and marking a nearly 2 percent weekly elevation.
As per Phil Flynn, a senior market analyst at Price Futures Group Inc., the oil industry is gradually accounting for the upcoming supply squeeze. “Global supplies are beginning to tighten, a trend we anticipate might escalate dramatically in the forthcoming weeks,” he articulated.
Is OPEC Output Enough to Stabilize the Market?
In contrast, Suhail al-Mazrouei, the Energy Minister for the United Arab Emirates, interacting with the media on Friday, intimated the current output from the Organization of the Petroleum Exporting Countries (OPEC) is sufficient to keep the market afloat. He maintained, “Our current efforts are satisfactory from our perspective for the time being. However, we hold regular meetings, and should the need for any further actions arise, we will address them in our discussions.”
Russian crude had plummeted to a six-month low in the four weeks leading to July 16. Meanwhile, Saudi Arabia’s crude oil exports have also begun to diminish, falling below 7 million barrels per day for the first time in recent memory.
Intensifying Geopolitical Jitters
The simmering Russia-Ukraine crisis continues to add fuel to the fire. Concerns were heightened on Friday as Russian forces targeted Ukrainian food export facilities for a fourth consecutive day. Further escalating tensions, Russia initiated naval drills in the Black Sea after backing out of a UN-arranged safe sea corridor pact.
Market Sentiment: A Pendulum Between Fear and Hope
The market sentiment remains a hotbed of uncertainty, teetering between the immediate joy of tightening supply and the lingering dread of stalling demand. Chances of a further surge in the rates from the US Federal Reserve later in the month advanced marginally following the latest jobless claims data that indicated a resilient labor market.
Jay Hatfield, CEO of Infrastructure Capital Management, offered a long-term perspective. He projects the supply and demand equilibrium for oil in 2024 as hovering in the $75-$95 range. According to Hatfield, “Restricted OPEC+ supply and buoyant US demand will somewhat counterbalance the slower-than-anticipated demand from the lagging Chinese economic recovery.”
