After two years characterized by a series of ups and downs in the Commodities market, the price of black gold is rising yet again. With a plethora of different factors affecting global supply and demand for petroleum, it may seem like the perfect storm has converged to push Oil (CL) prices upward yet again.
Two Years of Turmoil
Some major global events can be seen as having had a significant impact on the Oil markets in recent times. The global COVID-19 pandemic, along with the travel restrictions and business downturns it brought in its wake, greatly decreased consumer demand for petroleum from New York to Tokyo. In April of 2020, the price of Oil even went negative, as storage facilities had more supply than they were able to contain and paid buyers to take barrels of petroleum in a reversal of normal market trends.
2022 has, thus far, not proven a reprieve from the price rollercoaster for Oil traders. In the last week of February, the world was caught by surprise as Russian forces invaded their southern neighbour, Ukraine. Among other concerns, fears regarding a disruption in supplies of crude as well as Natural Gas (NG) sourced in the Russian Federation's resource-rich interior quickly spread. As a wide tranche of sanctions were applied by Western powers against Russian Commodity supplies, Oil’s price per barrel skyrocketed, reaching nearly $125 on March 8th.
The Ukrainian conflict, as well as the post-lockdown economic rebound, helped keep demand high and supplies low earlier this year, which in turn has pushed U.S. inflation to the highest levels seen since the first Reagan administration in the early 1980s.
However, somewhat counteracting the price pressures induced by the military conflict initiated by one of the world’s most prolific petroleum producers, the Chinese Communist Party put several of its main economic centres under strict lockdown in March. Given China’s stature in the global economy, coronavirus restrictions had an outsized effect on Oil demand. In a little over a week after nearing a 13-year high, Oil’s price per barrel fell 23.5% to $95 on March 16th.
On the Way Back Up?
Since Oil’s peak and swift drop in March, petroleum’s price per barrel has risen and fallen in accordance with the last two months’ changing market moods. However, for over a week now, Crude Oil as well as international benchmark Brent Oil (EB) have been on a strong upward trajectory. As of the time of writing, Oil has risen by 4.5% over the past eight days, and Brent has increased by nearly 2.3%.
Some analysts are directly linking this latest reversal in black gold’s fortunes to the easing of COVID-19 restrictions in China. Beginning in June, all manufacturers in the eastern coastal megalopolis of Shanghai will be permitted to resume business as usual, and, for the moment, harsher anti-infection measures in capital Beijing do not seem to be on the table.
Furthermore, despite harsh rhetoric against the Russian Federation’s top brass on the part of European Union officials, an all-out ban on crude imports from Russia has run aground on the rocks of intra-member controversy. However, despite the difficulties so far observed with reaching an agreement on farther-reaching Commodity bans in the EU, talks are set to continue this week, potentially increasing concerns about further supply disruptions.
With the summer season opening today with the Memorial Day holiday in the U.S. Many families across the country are set to consume large quantities of gasoline due to increased travel by car. The dominant mood on trading floors at the moment seems to be bullish with regard to Oil demand’s near-term trajectory.
Brent Oil looks likely to close May with its sixth consecutive monthly price rise, but as we’ve learned all too well over the past two years, market trends can change on a dime. Economic trends, as well as geopolitical conflict and COVID-19 infection rates, could go a long way toward determining whether the petroleum market can keep its momentum or not.