Upon announcement that Libya's oil production has fallen, crude-oil futures rose to their highest in three weeks. European leaders have threatened tougher sanctions on Russia after the shooting of Malaysia Airlines Flight 17 last week. These continuous geopolitical concerns have affected light, sweet crude futures for delivery in August, rising $1.46, or 1.4%, to settle at $104.59 a barrel on the New York Mercantile Exchange, reports Market Watch. This is their highest since July 1st.
According to the Wall Street Journal, the August contract ended today while the September contract rose 91 cents and finished at $102.86 a barrel. Meanwhile, Brent crude ICE Futures exchanged increased to 44 cents, or 0.4%, to $107.68 a barrel. The price gap between the two September contracts was the narrowest since October, as the difference fell to $4.82 a barrel.
Harsher sanctions on Russia may affect energy supply
Although it has yet to be confirmed, there is suspicion that the Malaysia Airlines Flight MH17 was shot down by alleged Russian-backed separatist rebels. European leaders have enforced harsher sanctions on Russia, causing the oil market to fear a disturbance in energy supplies.
According to Market Watch, Capital Economics senior commodities economist Caroline Bain said, "The most severe possible consequence of deteriorating relations [with] Russia would be disruption to Russian energy supplies to the EU, whether as a result of…sanctions or Russian manipulation."
Before the tragedy, oil prices had been beginning to ease, as U.S. crude fell below $100 a barrel in mid- July, which is the lowest since May. According to Forbes, oil prices would have been likely to stay below $100 a barrel if the world were more peaceful, reports Steve LeVine of Quartz. For since last Fall, geopolitical issues have removed approximately 3.5 million barrels of oil a day from world markets. LeVine predicts that $125 per barrel would not be unheard of given the world's instability.
Libya's oil production drops
Rebels fighting to achieve self-rule in Libya have confirmed that they will agree to open Es Sider, the country's largest oil port with the capacity to load 34,000 barrels a day. State-run National Oil Corp. spokesman Mohamed Elharari said by phone in Tripoli yesterday that their production has now climbed to 470,000 a day, reports Forbes.
The fight to control Tripoli airport between rival militias continued over the weekend. According to Market Watch, Matt Smith, a commodity analyst with Schneider Electric, noted that this unrest in Libya "is halting too much of a sell off" in crude oil.
However, the structural changes of the market have made it able to withstand multiple geopolitical shocks and keep prices from drastic increases.
Tim Evans, analyst at Citi Futures Perspective said, "Given that the Brent market is lagging behind, I think that the tone of the international market remains soft and relatively complacent when it comes to a lot of the geopolitical risk elements out there—whether that's Ukraine, whether that is Iraq, whether that's Libya," reports the Wall Street Journal.
Oil market is no longer panicked
According to the Wall Street Journal, based on the trade in future contracts, the price of oil delivery for up to years in the future has recently flipped, for the prices of contracts nearer in time are currently lower than the prices of those farther away. This indicates the abundance of supplies on a global scale despite current crisis.
Not only has the world's oil supply continued to climb over the years, but it has also diversified, as the Middle East's role as a leading producer of oil came to an end a few years ago. As Forbes reports, unless war breaks out between Russia and the West, the world's oil supply is likely to remain this way for years to come.
This material is conveyed as a solicitation for entering into a derivatives transaction.
This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.
Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.
You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.