One major factor that dominated oil markets is the possibility of a nuclear deal between the US and Iran, and also better relations between the two countries, based on the reported talks between the two parties. This would mean that the supply from Iran will be in the markets as soon as such a pact is reached. Therefore, the prices should naturally come down. But there is a strong view that anticipating this supply in the near future oil prices may start going up. Brent is already above the US$ 70 per barrel mark, a crucial level technically, as any formation of a bottom at US$ 68 to US$ 70 may help the price to
base itself for a further up-move.

One of the seasonal factors is that during and immediately after the summer in the northern hemisphere the number of people who would take to the highways and moving to holiday destinations is quite large, and this keeps the prices high. This is one reason that may support prices to remain high. It is also worth noting that the recovery in economic activity in the US and Europe is on course, and the same may be true of the leading Asian countries too. This may also support higher oil
prices though demand in Asia is yet to go back to the pre-pandemic levels. The production in the US which was at 13 million barrels per day just before the pandemic has touched almost 11 million barrels per day recently. Therefore, restoration of supply as well as demand is happening. Overall economic conditions warrant higher consumption and therefore, higher prices. Again, much would depend on the stance taken by OPEC + which may be meeting soon. Russia is now in sync with OPEC in achieving the production cuts which the OPEC had envisioned earlier.

A related matter is the enhanced climate activism seen in the recent past and the likely attempts at containment of carbon emissions by oil companies and producers. It is gathering pace and it is good for environment and the posterity. It also means higher prices for oil as we start implementing the governance standards on climate. The extent to which renewable energy or electricity could replace the traditional sources is limited in the initial stages, and in fact, many believe that common man may not be able to afford the costs associated with electric vehicles.

Oil may test US$ 73 -US$ 74 levels, and the support may be at US$ 68 level. But its rise may be severely limited by the strength in the US Dollar.


Leave a Reply