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THE CONFUSED OIL MARKET

Harvest Global Markets :

Crude Oil, the most frequently traded product in the market, is swinging between $78-$82 per barrel and is striving hard to follow a clear direction. Conflicting fundamentals in the market have been emitting complicating signals, and the perplexed investors have now opted to scalp rather than hold a specified bearish or bullish position.

So what has made Oil a pendulum?

Firstly, due to Russian-Ukraine Invasion and peaking inflation, economies worldwide are adopting aggressive monetary policies to combat the menace of soaring prices; consequently, the economies are experiencing a drop in their aggregate demand levels, which are posing a downward pressure on oil prices.

Secondly, Canada’s month-on-month Gross domestic product was released on September 29th and documented a positive growth of 0.1% against a forecast of -0.1%. Since Canada is a rich Oil-producing country, a strong indication of Canada’s demand supported the oil prices yesterday. Moreover, China’s ease in lockdown and a little retracement in the country’s manufacturing activity further aided the prices of Oil to rise above the level of solid psychological resistance of $80 per barrel.

Thirdly, Europe’s inflation year-on-year boomed to 10.0% from 9.1% as per the data released today at 1400 HRS PKT. This excessive hike in CPI increased the likelihood of further fierce monetary policy, leading to an amplified fear of recession in the European region and thus pushing the Oil prices down again.

Lastly, the heated debate about whether Europe will impose a complete embargo on Oil supplies imported from Russia or not also contributes to the current baffled market of Crude Oil. Europe imports approximately 1.9 million barrels daily, representing 38% of Russian Oil imports. Suppose Europe bans the oil supply from Russia. In that case, Russia can easily direct 75% of current Europe’s ratio to the Asian countries. Still, Russia will have to offer reasonable prices for guaranteed markets that can lower oil prices. Even if Russia redirects its supply to other parts of the world, European insurance companies dominate the global shipping market, and it may withdraw the insurance of oil shipments. On the other hand, Europe will then have to rely on the Gulf States and the U.S for oil supplies; in fact, the Euro zone has already increased its oil imports from Gulf States to 1.2 million barrels per day from 500,000 barrels per day; nevertheless, Gulf estates are running flat on oil production which can result in surging oil prices.

It seems that Oil may take a long time to find its true calling.

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