Even before last week’s OPEC meeting, there had been a lot of bullish sentiments in the oil markets.
Brent oil briefly touched $71 a barrel after Saudi Arabia revealed that its crude terminal (the world’s largest) was attacked by missiles and drones on Sunday morning, 7th March, 2021. Though it was successfully repelled, the information of the attack seems to have shaken the market.
Oil futures in London jumped by almost +3% to the highest price level since January 2020. Remember what happened in January 2020? The U.S attacked Iranian military officer, Qasem Soleimani, and geopolitical tensions sparked fears that the oil-producing nation might be badly affected if war ensued between the United States of America and Iran. Prices reached the same levels but later faded off as normalcy returned.
What next for oil?
Now that geopolitical tensions have been added to the mix with other bullish factors (asset rotation, inflation hedge, potential dollar weakening because of the trillion-dollar stimulus package, Shale troubles and potential market tightening with supply cuts), it would be a shame for oil bulls not to take prices to higher levels. All these should create the enabling environment for the much-hyped and anticipated $100 level.
However, there are other issues that could throw a curve ball at oil’s upward trajectory.
Firstly, rising US Treasury yield is pushing the dollar higher and as the saying goes, “Stronger dollar, weaker oil price rise.”
There are also challenges with demand. Flights are still empty and airlines still run low operations (which could change this summer).
In addition, there was a potential return of U.S production, which surprisingly did not move the market last week.
Notably, there have been reports that claim Iranian oil is beginning to return to the market. Iran has been moving record amounts of crude oil to top client China, while India, the third largest global importer of oil after China & U.S. respectively, has state refiners adding Iranian oil to her annual import plans, based on the assumption that U.S. sanctions on Iran will soon ease.
However, analysts might argue that prices are retreating, as evident in today’s session where oil posted its first loss in four sessions. Chief Market Strategist at SIA Wealth Management, Colin Ciesynski, said “oil was getting a bit overbought in the short term.”
Also, if we look at the one year chart, it seems there is a strong resistance around $70 which has sent prices crashing downwards.
In all, though we might have a market correction, as banks and trading houses have indicated, we will have higher oil prices.
Will Nigeria take advantage of this prospective windfall? That is another kettle of fish.