The ongoing Israel-Gaza conflict has also played a significant role in the oil market’s turbulence.
Oil prices have exhibited a significant level of volatility in the past few days. Following a 2% increase the previous day, oil prices plummeted, owing mostly to the United States’ decision to lift sanctions on OPEC member Venezuela, according to reports.
Movement of Global Oil Prices
Earlier today, Brent, the benchmark for two-thirds of the world’s oil, was trading 0.57% lower at $90.98 per barrel, and West Texas Intermediate (WTI), the gauge tracking U.S. crude, was down 0.36% at $88 a barrel. Just the day before, Brent had settled at $91.50 a barrel, marking a 1.78% increase, while WTI was up 1.92% at $88.32.
The trigger for this price fluctuation was the decision by the US Treasury Department to issue a six-month general license on Wednesday, temporarily authorizing transactions involving Venezuela’s oil and gas sector. This move came after a deal was reached between the Venezuelan government and the country’s political opposition, aimed at ensuring fair elections next year.
However, the Treasury Department made it clear that the license would only be renewed if Venezuela met its commitments under the electoral roadmap and other obligations, including the release of wrongfully detained individuals.
While the relaxation of sanctions will take some time to fully impact the market, it is expected to lead to the return of customers in countries like India and the United States, both of which were significant buyers of Venezuelan oil before sanctions were imposed. This renewed competition for Venezuelan barrels is likely to drive prices up, particularly for Merey, which is a favored grade among China’s independent refiners.
Dynamics of the Oil Market
The oil market has been tight due mostly to OPEC+ output cuts and supply reductions of 1.3 million barrels per day by key suppliers such as Saudi Arabia and Russia. Furthermore, the International Energy Agency recently boosted its 2023 demand prediction to 2.3 million barrels per day, showing strong demand growth in China, India, and Brazil.
The ongoing Israel-Gaza conflict has also played a role in the oil market’s turbulence. Since the militant group Hamas initiated an unprecedented assault on Israel on October 7, Brent crude has risen by approximately 8%. This conflict has led to Israeli air strikes on Gaza and the potential for a ground offensive in the densely populated Palestinian enclave.
Considering the position of the region and the interest it has generated within the Gulf, known for its rich oil nations, impact on prices may be more grave if the conflict is allowed to drag on for too long.
Apart from geopolitical factors, changes in US crude stocks also impacted oil prices. In the week ending on October 13, U.S. crude stocks decreased by 4.5 million barrels, reflecting trends in fuel demand.
Furthermore, the data from the US Energy Information Administration (EIA) showed that total petroleum inventories fell by 2.4 million barrels during the same week, while distillate fuel stocks dropped by 3.2 million barrels.