Last week ended on a calmer note for crude oil markets and major oil-producing countries.
Crude oil prices fell slightly as the week ended, finally hovering a little below the recent highs. Forecasts of a warm U.S. winter put some brakes on the price rally that carried the crude markets beyond $86 a barrel early Thursday.
A lot has happened, contributing to the evolving situation.
Winter in much of the United States is expected to be warmer than average, a National Oceanic and Atmospheric Administration report released on Thursday said. The report from the U.S. government agency dampened the oil markets.
Oil also came under pressure from drops in coal and natural gas prices. And the resurgence of lockdowns in Eastern Europe and Russia due to rising COVID-19 cases seemed to threaten the global economic recovery.
But until early last week, crude market sentiments were in positive territory. Markets were helped by the news of tighter crude and fuel inventories in the U.S. Tightening markets became evident once the U.S. Energy Information Agency reported that the crude stocks at the Cushing, Okla., storage hub fell to a three-year low.
The price of Brent crude oil has risen more than 60 per cent this year, aided by a slow increase in supply by the Organization of Petroleum Exporting Countries and its allies within OPEC+. In addition, a global coal and natural gas crunch has driven power generators to switch to oil, a Reuters report said.
However, a few political moves on the energy chessboard helped cool the red-hot oil markets as oil became a major issue.
Late last week, U.S. President Joe Biden blamed high oil prices on OPEC and its policy of withholding supplies. “A lot of Middle Eastern folks want to talk to me,” he said. “I’m not sure I’m going to talk to them. But the point is, it’s about gas production.”
On Oct. 13, White House press secretary Jen Psaki was asked about rising energy prices. She clarified that the Biden administration’s economic team continued to discuss its options to address shortages or cost pressures going into winter. “Now, we know that some of the issue here is supply as a result of the pandemic,” Psaki said.
However, the key trigger lowering prices came from China, the world’s largest crude importer. Oil prices dropped on Wednesday after China said it was considering intervening in the domestic coal market to reduce the record prices to a “reasonable range.”
Oil markets began softening once the Chinese National Development and Reform Commission said the government was considering an intervention to reduce the price of coal, whose recent “increase has completely deviated from the fundamentals of supply and demand.”
“The heating season is approaching and the price is still showing a further irrational upward trend,” Reuters quoted the commission as saying.
The Chinese intervention to bring coal prices down could “reverse the fuel switch to oil,” analysts at Commerzbank told Reuters.
However, not everyone seemed to agree with the notion that OPEC+ needed to respond by opening their taps rapidly.
Even if OPEC+ were to boost the oil supply, as major consuming nations have called for, it wouldn’t make much difference on the global natural gas market, Saudi Energy Minister Prince Abdulaziz bin Salman said on Wednesday.
The upcoming COP26 climate change conference and moves behind the scenes to contain oil consumption also seemed to adversely impact the oil market sentiments. Beyond Oil and Gas Alliance, headed by Denmark and Costa Rica, planned to bring together countries and subnational entities willing to set an end date for fossil fuel extraction. The list of those signing on will be released in Glasgow, Scotland, during COP26 next week.
So an interesting game is underway. Meanwhile, the push and pull of conflicting factions may be providing some relief to consumers.
Toronto-based Rashid Husain Syed is a respected energy and political analyst. The Middle East is his area of focus. As well as writing for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has been asked to provide his perspective on global energy issues by both the Department of Energy in Washington and the International Energy Agency in Paris. For interview requests, click here.
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