The Oil Market Isn’t As Weak As It Appears

When looking at crude oil markets, the situation on the ground is a clearly pro-OPEC. The speculation about a possible end to the OPEC+ production cuts is largely unfounded. Saudi Arabia, Russia and several other major producers are content with the current situation. At the same time, US storage volumes are unrepresentative, as increases are supported by the lack of demand for US shale oil. As some have clearly stated, there is a crisis looming due to crude quality issues. With outages in Venezuela and Iran and instability in Iraq, Sudan, Libya and Algeria, volumes of a certain quality of oil have fallen dramatically. US shale oil should not be considered a savior or swing producer, as it cannot fill the gaps in the current market. Furthermore, Iranian volumes are no longer attractive to its former clients. China, India and even Turkey, are reducing their intake of Iranian crude. Some of crude from Tehran will still enter the market, but not enough.

The market is set for a recovery in the coming weeks, especially if markets continue to overreact to the downside. At the same time, geopolitical risks are much higher than the market wants to admit. A possible proxy-war in the Middle East is a real possibility, with Iraq or Yemen as possible targets. A new confrontation would remove the current ceiling of $75 per barrel with a bang. Observers should be wary of the current bearish narrative in the global oil market.

Source: oilprice