Crude oil hits 7-week high. There are several reasons for price increase

11.07.2019 15:31|Daniel Kostecki

The price of crude oil, specifically WTI barrel, has once again begun to rise. Since the beginning of July, the increase has already reached nearly 9 percent, and the price has exceeded the round level of USD 60. The WTI barrel is the most expensive since the end of May this year.

The strong price increase seems to be the result of several overlapping factors. First, there are still tensions in the Middle East that may destabilize the Persian Gulf region, which in turn raises concerns about oil transport. On Wednesday the British Navy intervened to stop Iran from blocking a commercial oil tanker leaving the Persian Gulf. On Wednesday also, US President Donald Trump said he would impose more sanctions on Iran and accuse the Islamic Republic of violation of the nuclear accord. The rise in tensions in US and European relations with Iran may be a demand factor for oil.

Secondly, there is a storm in the Gulf of Mexico. The National Hurricane Center predicts that Barry's tropical storm will rise in the Gulf of Mexico no later than Thursday and increase its strength to hurricane on Saturday, when it may hit the Louisiana coast, where a partial evacuation was ordered. During the weekend in the Gulf of Mexico, hurricane winds and extensive floods are predicted. As a result, 15 production platforms and 4 rigs have been evacuated. The Bureau of Safety and Environmental Enforcement reported that the volume of oil production fell by 602,715 barrels a day. The oil industry giants have also taken appropriate action. Chevron has begun closing its five platforms and will start moving out all staff. Royal Dutch Shell Plc and BP also evacuated employees.

Thirdly, oil stocks in the United States are shrinking. Tuesday's API data showed the largest decrease since December 2018. It was the fourth consecutive week of crude stocks declining. In turn, Wednesday's EIA data showed a drop in crude oil inventories by 9.5 million barrels. Market consensus assumes a drop by approx. 3 million barrels.

All these factors, overlapping one another, can be decisive in shaping the price of oil. The most important thing now is how long the platforms in the Gulf of Mexico will remain closed and when oil production will return and how further relations with Iran will develop.

 

Daniel Kostecki, Chief Analyst Conotoxia Ltd.

Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.

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