3 key factors that could influence crude oil price in near term

4 min read | August 31, 2021 12:45 PM AEST | By Nitish Kumar

3 key factors that could influence crude oil price in near term — Image source: Virrage Images, Shutterstock.com

Resurgence of COVID-19 cases globally

After the first and the second wave, the COVID-19 pandemic is still haunting the population all over the world. The new variants are creating panic, leading to restrictions and curfew-like situations at many places. Though robust vaccination programs are being implemented, there is ambiguity whether one set of vaccines could prevent all variants of the deadly virus.

The best options in the current situation seem to be restricting movement, making face masks compulsory, and following social distancing.

Most of the economic activities are now gearing up, pushing the demand for key commodities. However, restrictions in movements and social distancing protocols are affecting the normal movement of people. As a result, there are growing concerns about the outlook for fuel demand. Transportation is the largest consumer of this commodity.

If COVID-19 cases continue to increase and more supply from large global producers reaches the market, the crude oil price is expected to go down.

OPEC+ nations strictly follow production cut

Russia and Saudi Arabia are among the largest oil producers globally, seeking to capture a larger share of the crude oil market.

Meanwhile, war-torn Iraq is trying to sell more oil to generate as much revenue to support its development projects. Also, any Middle Eastern country looking to fund its infrastructure projects could start pumping more oil.

Any likely scenario could imbalance the already fragile demand and supply of oil.

Source: © Gumpapa | Megapixl.com

The OPEC+ members have also decided to gradually lift the production cut limits. The next round of meetings is scheduled for September 2021, wherein decisions around increasing the output are expected.

US shale oil production

The latest report on the US shale oil production has highlighted expected output of up to 8 million barrels per day in September 2021. This will be the highest volume since April 2020.

According to data from the Energy Information Administration (EIA), total crude oil production of the US stood at 11.2 million barrels per day in May and is expected to remain flat through October 2021.

Current increasing WTI crude oil prices are motivating oil companies to undertake more drilling campaigns and increase output to capture further market share. Amid increasing fuel prices in the US, President Joe Biden recently called the OPEC to boost its production to ease the crude oil price.

If US companies go on a drilling spree, there might be enough oil production reducing the US dependency on foreign oil, which means less demand for oil in the market causing the prices to drop drastically.

On various occasions, President Biden has mentioned propelling the United States towards cleaner and renewable energy. His stance on hydrofracturing is well known and may restrict the increase in the production level of the country.

Bottom Line

Crude oil is a highly volatile commodity, and its prices may fluctuate on the slightest of incident of global significance. Geopolitical issues may come into play as the Afghanistan crisis is growing. But the balance between demand and supply will always remain the key to crude oil prices.

Good read: Why are crude oil prices on fire in 2021?

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