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Informist, Tuesday, Aug 20, 2024

 

NEW DELHI – The sharp fall in global crude oil prices since Friday has been exaggerated, and prices are expected to rebound soon, Commerzbank AG said in a report. 

 

Brent crude prices on the Intercontinental Exchange have fallen more than 2% since Friday, while those of West Texas Intermediate crude have declined nearly 3% in the same period. The decline has been attributed to struggling economic activities in the top importer of crude oil, China, and talks about a ceasefire between Israel and Hamas in West Asia. 

 

"New hopes of a ceasefire in the Gaza Strip, which would also significantly reduce the risk of an Iranian retaliatory strike on Israel, are cited as the reason for the price slide," Commerzbank said. US Secretary of State Blinken, who is currently in Israel, has described the current efforts as the best and possibly the last chance for a ceasefire and has urged the conflict parties to cave in. 

 

"However, based on the experience of recent months, it is rather uncertain whether this will happen. It therefore seems premature to price out the geopolitical risk premium," the German bank said.     

 

Moreover, the Organization of the Petroleum Exporting Countries and allies are set to unwind their voluntary production cuts, starting October. The voluntary production cuts were set to expire in June. However, the cartel had extended the voluntary cuts till the end of September, and said it would start unwinding the cuts through October to September 2025. 

 

"Given the current demand trend, the oil market would then be at risk of oversupply from the fourth quarter, or next year at the latest," according to the report. "To prevent this, OPEC+ will have little choice but to postpone the expansion of production and hope for a revival in demand."

 

Commerzbank said there have been no supply disruptions despite repeated attacks by Iran-backed Houthi rebels on cargo ships and oil tankers in the Red Sea. However, this could change in the event of a direct confrontation between Iran and Israel. Even with a low risk of supply disruption from the Red Sea, the German bank believes a certain risk premium on the oil price is justified. "For this reason, we see the price of Brent oil at USD 85 per barrel at the end of the year as somewhat higher than the subdued fundamental data would otherwise justify."

 

At the time of writing, the price of Brent crude was $77.84 a barrel, while that of WTI was $73.78 per bbl.  End

 

US$1 = 83.79 rupees

 

Reported by Sayantan Sarkar

Edited by Vidhi Verma

 

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