Analysts say the oil market is more volatile than ever as it tries to determine which direction it will take next and whether petrol prices will be higher this summer.
They have to contend with two new factors: the international crude oil price trade versus a flip-flop in the US crude oil trade, and a new prominent role for India in how crude is processed and transported. Alone, no factor will determine where the market goes next. But on the margins, they are important to most companies
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The first reason that markets are rolling is the change in the pattern of international oil trade. Over the years, West Texas Intermediate Crude has traded at significant discounts with the US benchmark price, the international price Brent crude. It just became more expensive. On Wednesday, WTI futures were down 0.7% at 1 111.66 and Brent was down 0.7% at 1 111.15. A year ago, Brent was $ 68.71 and WTI was $ 65.49.
One of the main reasons Brent trades for more money is because it is easier to send around the world. Brent, which trades in the North Sea, is easy to transport. Oil from West Texas is delivered to a pipeline hub in Oklahoma. As U.S. production increased due to the shale revolution, much of that oil remained landlocked without access to international buyers who could pay a premium for it.
Some things have changed. Thanks to improved infrastructure for shipping, a growing amount of crude is now being exported from the United States, allowing crude sellers to sell to more customers. And US refiners are buying more crude than usual because they are earning a record amount by refining it into fuel. With the end of the Covid-19 ban, more people are traveling to the United States, so fuel demand is rising. Meanwhile, Russia is producing less fuel because sanctions have affected where it can export that fuel, so the United States is replacing some lost supplies.
At the same time, Brent prices have fallen due to a variety of factors related to international politics and the economy. The EU has not been able to reach an agreement on sanctions on Russian oil – the possibility of sanctions has previously led to price increases and delays in approving those sanctions have pushed them down again. Also, international issues such as the Covid lockdown in China could “weigh more on Brent, further curtail expansion,” wrote Lisa Orme and oil analyst at S&P Global Commodity Insights in an email. Baron’s.
It is still difficult to determine what this means for long-term price trends. If WTI stays high due to strong demand, it will push up prices. But if it is more because of Brent’s weakness, then the price signal is not so strong. At the very least, this means that more volatility should be expected in front of oil investors as these trends either survive or reverse. Familiar patterns in the oil market fade quickly.
Another dynamic that has changed is the role of India. Historically, India has not been a major player in the oil market, at least in terms of production (it ranks third in use). The country produces about one million barrels per day, making it out of the top 10 for producers. But India has significant refining capacity and is capable of producing about five million barrels of fuel and other petroleum products per day. According to RBC Capital Markets analyst Michael Tran, India is buying it because other countries are staying away from Russia’s crude oil.
In fact, India has been importing more than 700,000 barrels of Russian crude oil since the invasion — trading at discounted prices on the international market. “India is firing on all cylinders,” Tran wrote. “Demand for crude imports and domestic products is reaching new heights. As noted, India’s exports of goods are at an all-time high of around 3.4 million barrels per day, as refiners take advantage of huge Russian crude discounts and huge margins between the growing gaps and volatility in the global commodity export market.
India’s willingness to buy crude crude from Russia এবং and Europe’s willingness to buy Russia’s crude products দেয় blunts the effect of sanctions and weakens other countries’ efforts to isolate Russia diplomatically. But it seems to be helping India economically. And it could also affect US companies competing to ship refined products to Europe.
“India’s apparent purchase of Russian crude is coming at the expense of the US barrel,” Tran wrote. “India has boxed out US crude exports, reducing flows for March and April by about 50% compared to 2021 levels.”
For now, US producers prefer
) Is enjoying strong revenue from high unpaid prices, and like refiners
(MPC) are building very strong margins, so India’s competition doesn’t hurt them much. But if this momentum continues, it could further affect U.S. companies and potentially weigh on margins in the future.