| | | | Yesterday, we talked about the recent drop in crude oil prices from around $82-$83 down to $75 despite significant draws in our oil inventories. We discussed how China's sluggish post-Covid economic recovery and other global economic factors, such as the war in Ukraine and fluctuating growth in Asia and Europe, contribute to uncertainties in oil demand and pricing.
Today, let's delve into another crucial aspect influencing oil prices: OPEC's production cuts and global geopolitical influences.
Initially, OPEC hinted at loosening production cuts to allow more oil to flow. But with the current pullback in crude prices, they're likely to maintain these cuts.
This should theoretically push crude oil prices higher, but that hasn’t been the case, largely because China’s demand remains subdued, as we discussed yesterday.
Importantly, geopolitical events, such as the ongoing conflicts in the Middle East, haven't had a significant impact on crude oil production because the areas experiencing turmoil aren’t big producers of oil.
Unless we see disruptions in major oil-producing regions — or natural disasters like hurricanes affecting production in the U.S. Gulf region, these factors might not drive oil prices up significantly.
It’s also important to understand the role of the U.S. in global oil production. The U.S. has become one of the world's top oil producers thanks to the shale revolution.
Any changes in U.S. production policies, whether due to political shifts (as I discussed last week) or technological advancements, could heavily impact global oil prices.
Looking towards the future, there are always key geopolitical events on the horizon that could potentially shake up the oil market.
For instance, any escalation in the Middle East conflicts or unexpected policy changes by major oil-producing countries (including the US) could lead to volatility in oil prices. Or, less likely but still possible, a surprise comeback by the Chinese economy could dramatically increase demand and send prices soaring.
Tomorrow, we’ll look into the seasonal trends of crude oil prices and how political influences might shape the market as we move forward.
Stay tuned to understand how these factors could affect markets.
— Geof Smith
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