Oil volatility returns

Nothing much had changed in the physical market for Brent oil to return losses for seven straight sessions earlier this month. Nothing changed for it to regain the lost ground in two sessions. Brent oil is back in the $70s, having earlier dropped to a 3-month low, following a week-long negative streak. The WTI too has gained over 7 percent in two trading sessions, and was last seen hovering around $67/bbl.

The Opec did not collapse in July. It could not quite create a stir either. Demand dynamics have largely stayed the same. Barring few supply disruptions in Mexico, global oil supply too has been steady over the past two months. The recent rally appears to be built more around speculation over Chinese demand projections, than solid fundamentals.

China made headlines on Monday, becoming the largest country to have reported zero locally transmitted cases. Ground zero for China is big news for oil demand. And that was what apparently brought the bulls back in the game. China showing such encouraging results in a time when Delta variant is a legit concern for some of the other leading economies, should keep oil from falling flat.

That could of course all change if Opec has a change of heart. The Kingdom of Saudi Arabia has so far made every possible effort to keep the Opec Plus group intact – showing uncharacteristically accommodative stance to member countries, more than once. US shale players do not appear to be in a rush either and the rig count increase is rather steady, much in line with demand patterns. Risks of oversupply appear more limited today, than they did last month before the Opec decision.

Uncertainty brings volatility, as was flagged earlier by BR Research that with various variables at play simultaneously, volatility could be high. Oil price projection is a tricky business and even the best in business have often been made to eat humble pies. At home in Pakistan, last week was beginning to look encouraging in terms of impact on import bill and the government’s ability to pass on prices. If the current week movement becomes a trend, the joy will prove short-lived.