Oil (CL), a substantial energy commodity, has certainly made the headlines numerous times this year mainly due to the volatility stemming from the Russia-Ukraine war and the global sanctions brought about on Russia, Europe’s main energy provider.
Yesterday, Monday, March 27th, was no different, as oil made a buzz again by soaring by 5.3% and surpassing the $70 price benchmark but this time, for slightly different reasons. Here are the latest energy commodities trading updates and what has been driving oil prices upward lately:
Why Are Oil Prices Rising?
Oil not only soared on Monday but as of the time of the writing, on Tuesday morning, it has also edged upward by 0.1%. Moreover, Monday’s rise was deemed the fastest in four months and was attributed to a variety of factors.
Silicon Valley Bank’s Rescue Purchase
Some posit that yesterday’s rise was the result of positive market sentiment emerging from an announcement by the Federal Deposit Insurance Corporation (FDIC) about Silicon Valley Bank (SVB). This is because, following SVB’s collapse and the overall banking turmoil that has prevailed over the past couple of weeks, many traders and investors may have, perhaps understandably, been cautious and pessimistic about the markets. As such, following SVB’s bankruptcy announcement on March, 10th, oil, along with other market assets, fell by 9.7% until last Friday, March 24th.
Nevertheless, the FDIC announced on Sunday evening that SVB will be purchased by First Citizens Bank, which may have been much-needed news for the markets and might have generated positive sentiment that could have pushed oil prices upward on Monday. (Source:CNBC)
Iraq and Turkey: Supply Issues Push Oil Upward
Commodities’ prices can be driven by supply and demand, which is one of the most important and basic laws in financial markets. According to the law of supply and demand, oil prices tend to rise when the demand for them increases, and they tend to fall when the demand decreases and the supply increases, and vice-versa.
Following this logic, oil prices skyrocketed on Monday due to supply and demand issues stemming from Iraq halting its oil exports from the semi-autonomous Kurdish area. Iraq and Turkey have been in dispute over Kurdistan’s oil exports for multiple years now. Therefore, when the International Chamber of Commerce’s International Court of Arbitration announced last Thursday that Iraq is winning the case oil certainly reacted.
Following the announcement, on Saturday, over half of the global oil supply, about 450,000 barrels per day of crude oil exports from Kurdistan ceased. In addition, the news also meant that Turkey will no longer load crude oil for Kurdistan without the permission of Iraq's federal government. This has indefinitely sent shockwaves through the energy market as stronger demand and less supply materialized, hence causing Oil prices to trade upward.
Russia Energy Status Update
When talking about oil prices, it is also important to look into the Russia-Ukraine conflict for any clues, since Russia is the EU’s biggest energy provider. Evidently, the former-soviet country is still in the spotlight when it comes to the energy markets. Following EU sanctions on Russian energy, the Kremlin announced that it would cut production by 500,000 barrels per day by June 2023. However, despite this anticipated cut, it seems that Russian crude exports by sea are still high at 3 million barrels per day. In addition, while the Russian sanctions can be harmful both to Europe and to Russia, China, may have benefitted from this as it bought Russian crude for cheaper.
It might also be worth noting that Crude Oil was not the only energy commodity to score gains yesterday, as Brent Oil (EB) and Heating Oil (HO) also hiked by 3.8% and 2.2% respectively. However, with the fate of the Russia-Ukraine conflict and the banking sector’s growth still unclear and as the markets become more volatile than ever, it might be prudent to keep track of the oil market to see what other factors might influence the trajectory of the oil market.