Having hit a 15-month low raising fears of a sustained bear run –crude oil prices have rebounded strongly, gaining over 10 percent from the lows earlier this month. Can the selloff sustain was the big question when the banking trouble was brewing earlier this month. The economic fallout from the collapse of Silicon Valley Bank and the takeover of Credit Suisse Group AG ignited fears of a widespread global recession and banking crisison the lines of 2008.
That seems to have been averted for now at least. And that is what partly explains the calm shown by the Opec Plus cartel, which kept on insisting on policy continuation underplaying the banking meltdown. Global banking meltdown fears have waned since the jitters after the Silicon Valley episode, as the US acquisition has eased worried of a likely financial turmoil that could hit the fuel demand considerably.
Apart from the relative ease at the banking front, the recent Iraq-Kurdistan row over pumping oil to Turkey has further fueled fire to supply constraints. An arbitration decision that required Baghdad’s consent to ship Kurdish oil to Turkey has taken nearly 0.4 million barrels per day of oil off the charts. This nearly makes up for half a percent of global oil supply and could potentially offset impact of Russian production, as the impasse could realistically lead to production cuts in Kurdistan territory which could take a while to come back online.
Loss of supply from the global plate at this juncture is likely to offer more power to the Opec Plus group, which is scheduled to meet early next month. Street consensus tells the cartel is expected to maintain existing production cuts and is not likely to respond aggressively to the recent price drop. The cartel members have time and again maintained that the oil market fundamentals remain largely unchanged and justify production quotas for the remainder of 2023.
On the demand front, China’s post-Covid economic recovery continues to surprise – as it is now expected to grow 6.5 percent in 2023 – enough to singlehandedly keep global oil demand growth in the green, barring exceptional circumstances.The likes of Pakistan can do precious little but to hope and pray the events unfold in their favor. The signals from the trading pit so far suggest oil will soon be back in the more familiar zone of the $80s/bbl.