Ellen Wald | Jul 22, 2021 05:28
The oil market has seen some extreme volatility this week. Some of it was due to OPEC's internal politics and the way the cartel chose to resolve the recent production impasse. Lack of clarity over demand signals has been an additional catalyst. Here's what it might all mean for prices.
On Sunday, OPEC+ met via videoconference and resolved remaining issues from its failed July 1 meeting.
Below, what the group agreed to do regarding oil production:
When trading opened on Monday the prices of WTI and Brent tumbled. Prices closed down by more than 7%. Both benchmarks fell below the $70 per barrel mark. The drop was not just due to OPEC+’s announcement, rather markets may also have been spooked by fear-inducing news about the impact of the Delta variant of the coronavirus and also by a selloff in the stock market.
However, after oil prices fell on Monday, prices went up a little on Tuesday and started crude oil inventories . Normally, a build in inventory would be seen as a negative sign for demand and a weight on prices. The EIA report was mixed, because it showed a slight drop in gasoline inventories.
This was not what the market expected because the report from the American Petroleum Institute (API) released the day before showed an increase in gasoline inventories.
Some inventories of the blending components used in gasoline. This could indicate that less gasoline is being produced, which means that refiners believe gasoline demand is going to decline soon. (And still prices rose after the report was released).
The truth is that there are signals to support the views of those who believe that oil demand is not going to improve much more and will level off or head down as we transition out of summer.
But there are also signals that indicate demand is still picking up and poised to climb, even if that climb is not as fast as some hoped only a few weeks ago.
This uncertainty, along with shifting OPEC policy, is making oil prices volatile, especially compared to last year when production cuts from OPEC+ helped keep prices notably stable (even if relatively low) throughout the summer months.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.