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Oil Supply about to get Complicated ?

Are the global crude oil supplies about to get costly again in the months ahead? The conflict in the Red Sea might be on the verge of escalation as European nations plan to launch their self-defence mission against the attacks. Even though current prices do not reflect any of this a crude oil volatility index continues to remain elevated at 34 compared to lows of 26 with the same oil prices.

The oil tanker rates have risen by 10% within the last month as routes taken by shipping companies avoid Suez Canal passage. During the same period, China even with the continuing economic slowdown has been a large buyer in the market as it tries to refill its oil reserves that it used during 2023.

There is some hope of a ceasefire deal that still has no answer from Hamas. But given that economic growth throughout the world is better than estimated for now the demand is unlikely to reduce. And the supply might result in being in deficit during the next couple of quarters. Especially if OPEC+ decides to carry over the cuts beyond March 2024.

Thus, there are more risks to the upside for the oil prices and related logistics that might push costs for companies this quarter and result in price hikes return next quarter onwards. This might result in an inflation reversal that would put the central banks into a puzzle for the road ahead.


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