Crude Shocks For Oil

Within the last eight trading sessions price of Crude oil has fallen to $85/bbl from $95/bbl and is now back near $90/bbl. This level of volatility in prices creates difficulty for not only market participants but also real-world users. Most of countries and corporations are now concerned about the next six to nine months as crude prices rise along with volatility.

The problem is more complex this time around as Russia and Saudi continue with their cuts. Earlier these cuts or any supply issues were compensated by the USA through the sale of SPR( Strategic Petroleum Reserves). But this time those inventories are already at a historic low with an estimate of only 17 days of usage left. Thus, it will be unlikely that the replacement of supply would be available.

On the demand front, everyone is counting on China's growth to fall in the next six to nine months easing the pressure on the supply deficit that is currently estimated at 2 million barrels per day. But for now, the ground data during the Golden Week holiday suggests that it might not be as bad as estimates. This would put further pressure on prices.

Combination of such fundamental issues with conflicts such as the Israel-Hamas, the prices are more likely to firm up. The important phase might be January-March when the inflation trend would be more clear and OPEC+ might announce its output policy for 2024.