Oil Prices Search for Calmer Seas

One reason the oil market is so interesting is that it’s been directly affected by events we’ve seen reported in the news since early 2020.  Recent oil prices have moved sharply due to weather events, health events, and OPEC (Organization of Petroleum Exporting Countries) policy decisions, however overall, supply and demand are the major drivers behind the price of this commodity. As to supply, the earth’s underground storehouse isn’t showing signs of running low, but OPEC can tend to cut crude oil production in order to prevent oil price drops. This is what they did in April 2020 on a massive scale, by 9.7 million barrels per day, marking off the largest oil output cut in history due to a sudden decline in oil demand which accompanied the pandemic. Lockdowns were enforced, businesses closed, and travel restricted in drastic proportions. As a result, crude oil was in oversupply and, by May 2020, oil prices had hit their lowest levels in 20 years. The result of their decision was a steady rebound in oil prices from mid-year 2020 into 2021, with prices moving between $75 a barrel in July 2021 and $62 in August. Let’s take an overview of recent price movements and their causes over all the oil markets, and try to consider how those factors might affect oil prices going into 2022. Get the latest oil updates from iFOREX online trading.

Stormy Times for Oil Markets

As of Q3 2021, the industry had not fully recovered, as oil demand continued to be dampened by Covid-19-related restrictions. In the words of OPEC, ‘The pace of recovery in oil demand is now assumed to be stronger and mostly taking place in 2022.’ After a telephone exchange between US President Biden and Chinese President Xi in early September, hopes of warmer US-China trade relations were kindled, and oil prices were boosted up to $73 a barrel. The reason? Sentiment tends to play a key role in setting oil prices, so when investors believe oil prices will increase, the interest in oil future contracts tends to increase as well, which could contribute to a rise in oil prices.

Another guest appearance on the oil market stage came in August 2021, this time by a surprise weather event, when Hurricane Ida moved into the Gulf Coast of America, shutting down three-fourths of the US Gulf’s offshore oil production. Royal Dutch Shell Plc, the largest oil producer in the US Gulf of Mexico, saw many of its offshore facilities damaged by the fierce winds and was forced to cancel a number of its cargo exports. As oil companies assessed the working order of their facilities, oil exports sank. Investors were uncertain when the tightened oil supplies would return to normal. It was partly as a result of this that the price of Brent crude oil rose 2.3% to $72.92 a barrel.

A Weather Forecast for 2022?

As to the course oil prices are moving on as we prepare to enter 2022, many factors seem no more certain than they were early in 2020. The Delta variant of the pandemic is neither under control nor understood. As of September, weather again began to threaten oil production facilities, when Tropical Storm Nicholas moved into the Gulf Coast of America. This looked set to slow oil output in Texas even more than it had been before.

Limited oil supply and the threat of more unfavourable weather would normally push prices up. Winter weather can tend to slow oil drilling, delay transportation and hinder refinery operations. In terms of consumption, people do use more heating oil in cold conditions but they also use less gasoline, since they travel less. OPEC is now shifting gear and increasing its output by 400,000 barrels a day, which could act bearishly on prices. Other factors that might weigh upon the price of oil are the possibility that Iran will become an oil seller again and a potential increase in supply coming from strategic US oil reserves.

iFOREX Online trading

The uncertainty amongst all the oil markets may provide the type of volatility that can lead to both opportunities and risks for CFD traders. CFDs allow you to invest in price changes in both directions—increases as well as decreases—of Aramco oil prices, as well as hundreds of other CFD instruments, without the need to purchase the underlying asset. Benchmark crude oil prices were up by about 40% in 2021 and, along similar lines, Aramco oil prices have risen more than 30% since the start of the year. Where will they go next? CFD traders who invest in price movements at iFOREX online trading on all the oil markets should keep their eyes on the news for the latest in weather events, pandemic developments, and international trade agreements in order to make more informed trading decisions.