InvestorQ : What is driving the price of crude higher and how much longer would it sustain?
Debbie Mascarenhas made post

What is driving the price of crude higher and how much longer would it sustain?

Arti Chavan answered.
12 months ago

On 01st December 2021, Brent Crude was trading at $68.87/bbl. Exactly 3 months later, the price of Brent crude has surged by 70% at $118/bbl. What has really driven this sharp spike in oil prices globally.

· The first reason is the less than lethal impact of the Omicron variant. Eventually, the variant proved to be a lot more benign than was originally expected. At the end of the day, it hardly reduced demand for oil as was popularly expected.

· The second reason was the inability of OPEC to push up supply, or you may even say the unwillingness of OPEC to boost supply. After all, when the prices are so salivating, who would really want to boost supply and spoil the party.

· However, the biggest driving factor was the emerging war situation in Ukraine. Russia supplies nearly 35% of the energy needs of Europe and stringent sanctions on Russia could create massive supply chain constraints. That fear largely explains the oil spike.

The release of 30 million barrels by the US from the SPR was part of the 60 million barrels committed by the International Energy Agency. However, this is like a drop in the ocean at a time when the global oil market is undersupplied by 3-4 million barrels per day (bpd). This kind of release would be fully absorbed in just a matter of days. That has also disappointed the markets as they were expecting much more aggressive released of oil in the market.