OPEC previously talked about oil prices at $70 per barrel and that’s exactly what happened in Tuesday’s morning trading session. It has been a bumpy start of the week but given this recent surge, can we safely call $70 the new benchmark, or will prices soon settle?
It wasn’t just Brent that saw gains in Tuesday’s session – West Texas Intermediate (WTI) followed a very similar trajectory with both instruments surging by almost 3%. There’s no denying that the increase was quite dramatic for a single trading day.
The question on everyone’s mind is, what’s happening to oil prices? Well, given today’s volatile conditions in the oil industry, there’s no real way to pinpoint a single driver of price movements because very often (most of the times to be exact) it’s more than one factor that moves the markets – but there are a few noteworthy elements to this story.
One of the most important ones, and you might find yourself giggling when you hear this, is President Donald Trump’s tweet. (seems like his tweets can be seen as market movers at this point) Ok, let’s rewind to the actual tweet. “Russia vows to shoot down any and all missiles fired at Syria. Get ready Russia, because they will be coming, nice and new and “smart!” This sent oil and gold prices on a rampage, as investors became fearful of possible disruptions in the Middle East.
Oh, excuse me, you might be wondering how gold is related if you’re new to Energy trading. XAU (gold) is generally considered to be safe-haven, so naturally fearful investors flocked to it when they felt things might get unstable. Russia, firm in its response to President Trump, threatened with action should the U.S decide to follow through with its promise to take military action.
Later on, in yesterday’s trading session prices briefly fell on the back of the American Petroleum Institute (API), which reported an astonishing rise in U.S Crude inventories for last week – a rise of 1.758 million barrels to be exact, which is far from the 189K barrel drawdown that analysts initially expected. Today’s EIA weekly report, which is due to be released at 10:30 EDT, could make or break the recent gains prices have seen. We’ll have to wait and see if the Bears or Bulls will grab this one.
Fears over Trump’s Trade war have somewhat subsided over the past few days as tension in the Middle-East intensifies. “This geopolitical backdrop is occurring against a tightening market right now,” said Mr. Croft Head of Commodity Strategy at Royal Bank of Canada. This ‘backdrop’ is critical to keep in mind as we’ve seen occasional interruptions in oil supply not only because of the measure was taken by OPEC and its allies, but also because of natural incidences like hurricanes and wildfires. But there is a difference today and that is that the surplus has for the most part been eliminated.
Perhaps in the following months, we could see the surplus subside completely and that not taking into account the potential escalation of unforeseen geopolitical turmoil which means that any unexpected events that negatively affect supply will probably propel prices further. Stay tuned as we follow oil on its journey to a fresh and higher benchmark.
This article is for educational and informative purposes only and should not be considered as investment or trading advice.