Major fall out day for Brent crude in past two years

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Major fall out day for Brent crude in past two years
Aditi Jain - 13 July 2018

Against the trend of rising prices, the global benchmark Brent Crude saw a significant drop in prices –its highest drop in the past two years-- on Wednesday creating tensions in the oil demand of US and China. After the storming news came up, Libya said that it will boost the supply and the prices will reopen with higher expectations.

Brent Crude prices shaved off $5.46 or 6.9 per cent and stood at $73.40 (Rs 5,033.41) per bbl day before yesterday. The reduction in oil prices was the largest one after the fallout of February 9, 2016 in which US crude went down by $3.73 or 5 per cent to settle at $70.38 (Rs 4,813.64) per bbl.

Washington had previously commented that other countries must stop all the imports of Iranian oil from November 4 this year and if they do not, they will have to face U.S. financial restrictions, with no exemptions.

“I think various factors have gone into it. The fact that Iranian crude will not suddenly disappear and keep coming through one or other route, that Saudi, Russian and some others including US shale producers are likely to increase production, that Venezuela and Nigeria production is not going to get seriously hurt by problems there, that world economy may get adversely affected due to trade war, that US crude has started exports of significant quantities bringing down the gap between Brent and WTI, are all reasons for this,” said S.C. Tripathi, Former Petroleum Secretary of India told Outlook Money

He said, “But as the geopolitical situation about world economic outlook remains uncertain, crude prices also remain uncertain, but likely between 70 and 80 dollars with possibility of 10 per cent fluctuation on either side during the calendar year.”

This sudden fall has created trade tensions between US and China as it will directly affect their demand. The tariffs of $200 billion of Chinese goods made commodities lower with the fluctuations in the stock market.

Reacting on the fall, Bhami V. Shenoy, an oil sector expert says, “Wednesday was a real surprise but I attribute that mostly to speculations rather than any fundamental change in supply and demand. Oil is a very important commodity and many things depend upon that. One of the reasons for the drop in oil prices is that so many people had taken the position. I have been telling that the world community especially countries like India and China believe to see how they can try to stop this kind of spread of oil prices and this is not a very good way for economists who use the word discovering prices. This is not discovering prices, this is just a love of the gamblers to gamble,”

According to the Indian stock market, the prices of Brent Crude went down yesterday and stood at Rs 4,849 per bbl.

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