An offshore oil platform in California. The oil markets have been through some fluctuations in the past two weeks. Image Credit: Reuters

The oil markets have been through some fluctuations in the past two weeks, with Brent crude initially climbing to $70 a barrel and exceeding all expectations. However, it fell t to $63 before regaining to $65.

And then dipped to $62…

Many factors are contributing to these rapid fluctuations, not least the need to engage in some profit taking by traders after three earlier weeks of steady gains.

All nature abhors a vacuum, which explains all material changes from one form into another. This applies to all phenomena, including markets. Saudi Arabia’s voluntary production cut of one million barrels per day created a vacuum that contributed significantly to the rise in oil prices.

Other countries quickly filled the void left by Saudi Arabia, leading to an increase in supply that coincided with the return of fears over new closures, especially in Europe, due to the spread of new mutations of COVID-19. The supply increases came mainly from two countries, Iran and Venezuela due to the slackness of the US administration in the implementation of sanctions imposed by former president Donald Trump.

US pussyfoots

This has given an indirect green light to Iranian and Venezuelan exporters to resume oil exports, whereby they see it as an attempt to lure them to the negotiating table. Nevertheless, the results were opposite of what would be expected, as Iran viewed the US move as a weakness, leading to intransigence regarding its nuclear program and increased support for its allies in the region.

In this regard, Iran’s oil exports to China rose to nearly one million barrels per day, and Chinese imports from Venezuela have increased as well. Meanwhile, the US took advantage of Saudi Arabia’s voluntary oil output to increase its oil exports, notably to India.

In February, the US surpassed Saudi Arabia as the largest oil supplier to India after Iraq, while Saudi Arabia reduced its oil supplies to importers on the Asian continent. India imports 910,000 barrels per day from Iraq. It is important to know the impact of these shifts in market alignment on oil prices in the next few months. And especially because OPEC+ countries have decided to extend cuts on the current production ceiling until April.

In general, the reasons that we have referred to are natural, in terms of profit-taking. And it was also expected due to the return of Iranian oil. The increases coming from Iran and Venezuela will be absorbed thanks to the high demand resulting from the gradual return of economic activities in various countries.

Don’t raise the alarm

Therefore, there is nothing to worry about with regard to oil prices, as forecasted by Goldman Sachs, which last weekend called to buy oil at its current levels, expecting prices to rise again in the coming period. However, this will depend on the decisions taken by the OPEC+ group at its April meeting. There are two points of view, the first calls for extending existing cuts, while the other calls for raising the production ceiling due to expectations about an increase in demand.

Undoubtedly, the OPEC+ group’s decisions will affect oil prices, which the markets will see as setting price trends in the coming period. However, it is almost certain that OPEC+ countries will make every effort to maintain the gains made of late.

Mohammed Al Asoomi is a specialist in energy and Gulf economic affairs.