No worries about OPEC+, but oil traders

Faisal Faeq

Oil prices ended a volatile week that surpassed the $100 mark for the first time in 7 years, then retreated below the $100 mark by the week closing. Still, Brent crude price closed the week higher than the previous week at $97.93 per barrel, but WTI closed the week lower at $91.59 per barrel. Brent / WTI spread has significantly widened to $6.34 per barrel. This should incentivize West-East arbitrage and send more US crude exports to Asia.

The latest figures from the Commodity Futures Trading Commission (CFTC) on February 22, 2022, showed that long positions on crude oil futures on the New York Mercantile Exchange (NYMEX) numbered 473,139 contracts, down by 12,769 contracts from the previous week (1,000 barrels for each contract).

Obviously, investors are staying out of the game and are staying away from the conflict and actually want to transform their investments in cash. Hence the drop in longs because investors need to tackle:

1) The war

2) The inflation

3) Interest rates hikes

There are absolutely no concerns about OPEC+ collaboration and efforts going forward even if the West imposes sanctions on Russia, but the ultimate concerns will be around trading its barrels. For instance:

– What will be the impact of the sanctions on Russian trading houses? Specifically, Gunvor and Litasco?

– What will other trading firms that buy Russian crude and products do? Like Trafigura, Glencore and Vitol, to name a few?

– What will be the impact on major oil companies like BP, Shell and Totalenergies? or any major oil company that has a deal with Russia?

Market fundamentals are getting stronger and stronger. Moreover, the Russia-Ukraine crisis has further strengthen an already bullish oil market. More importantly however, the world will desperately continue relying on OPEC+ efforts to stabilize the market but not to bring oil prices down that is subject to market forces.

There is no doubt that geopolitical influences played a significant role in oil prices rise above the $100 barrier for the first time in 7 years. Still, there are also other essential factors such as the steep decline in oil upstream investments, the unplanned transition to renewable energy, the recovery of the global economy and the growth of oil demand, and the decline in global oil and petroleum refined products stocks.

Faisal Faeq.

Energy Adviser (former OPEC and Saudi Aramco)