Due to divergent signals between the Middle East and the remainder of the globe, the price of oil fell on Wednesday. The Houthi rebels in Yemen, who have vowed to assault oil ships in the Red Sea, have been the focus of increased airstrikes by the US and the UK. This increased the possibility of supply interruptions and temporarily increased the demand for oil. In contrast, non-OPEC producers—particularly Russia and Libya—kept up with the world’s oil demand, boosting their output despite the unrest and the cold weather. As a result, there was less pressure on oil prices and they remained within a certain range.
Commodity expert Daniel Ghali of TD Securities stated that traders who track market patterns would not be pleased with this scenario. He said that their inability to turn a profit stemmed from the oil prices’ unclear trajectory, which forced them to buy high and sell low.
The promptspread, which gauges the difference in price between oil contracts for immediate and later delivery, was one indicator of how the Middle East crisis was affecting the oil market. Excluding the days when the contracts expired, the global benchmark Brent crude rapidspread hit its biggest point since November. This indicated that the region’s uncertainty and volatility were reflected in the oil demand, which rapidly exceeded the supply.
Nevertheless, there were further reasons limiting the oil market’s advances. In order to maintain oil prices, the Organization of Petroleum Exporting Countries (OPEC) decided to maintain low production levels; however, this was countered by the rise in non-OPEC supply. The International Energy Agency (IEA) forecast that in 2023, when the global economy contracted and the market soured, there would be more oil available than there would be demand for it. In addition, Libya restored its oil shipments from its largest oil well following a brief closure, while the US oil sector recovered from the devastation caused by a powerful winter storm that interrupted its activities.
The circumstances in Russia, the second-largest oil producer in the world, have had an impact on the oil market. Due to unfavorable weather at certain ports and an attack by a Ukrainian drone that momentarily halted oil flow from a major Baltic terminal, Russia’s oil shipments by sea reached their lowest point in almost two months.
This reduced the availability of Russian oil in the global market and increased its price.
The combination of these factors resulted in a choppy session for the oil market, as the price of West Texas Intermediate (WTI), the US benchmark, fell by 0.5% to settle near $74 a barrel after moving in a range of less than $2.
