Oil prices rose due to supply concerns and geopolitical tensions
3 June 07:22
Oil prices continued to rise on Tuesday during trading in the Asian region amid serious concerns about the stability of global energy supplies, "Komersant Ukrainian" reports citing Reuters. The main factors behind the rise in prices were Iran’s expected rejection of the US proposal for a nuclear deal and the suspension of oil production in Canada due to large-scale forest fires.
Price dynamics on world markets
According to OilPrice.com, Brent crude oil futures rose by 26 cents, or 0.40%, to reach $64.89 per barrel as of 07:15 Kyiv time. U.S. West Texas Intermediate (WTI) rose even more – by 33 cents, or 0.53%, to $62.85 per barrel. It is worth noting that earlier in the trading session, WTI’s growth reached about 1%.
Both oil contracts showed strong growth dynamics after rising by almost 3% in the previous trading session. This was the market’s reaction to OPEC’s decision to maintain the planned increase in production for July at 411 thousand barrels per day, a figure that was lower than the pessimistic expectations of some market participants and remained at the same level as in the previous two months.
The Iranian factor and nuclear negotiations
The key geopolitical factor supporting the price increase was Iran’s position on the US proposals. According to an Iranian diplomat on Monday, Tehran is preparing to reject the US proposal to resolve the decades-old nuclear dispute. The Iranian side claims that the American proposal does not take into account Tehran’s interests and does not provide for a softening of Washington’s position on uranium enrichment.
Failure of the nuclear talks between the US and Iran could mean the preservation of the sanctions regime against the Islamic Republic, which would significantly limit Iranian oil supplies to the world market and create additional upward pressure on energy prices.
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Russian-Ukrainian war and geopolitical risks
The war between Russia and Ukraine continues to pose serious concerns about the stability of energy supplies and supports geopolitical premiums in oil market pricing. The war in Ukraine remains one of the biggest uncertainties for global energy security.
Canadian wildfires affect production
Natural disasters in Canada have added to the supply problems. Large-scale forest fires in the province of Alberta have forced a number of oil and gas producers to temporarily suspend operations, which could lead to a reduction in supplies to the market.
According to Reuters, the wildfires in Canada have already affected oil sands production of more than 344 thousand barrels per day, which is approximately 7% of the country’s total crude oil production.
Market reaction to OPEC’s decision
The significant rise in oil prices on Monday largely reflected the relief of market participants that OPEC did not go for a larger increase in production compared to the previous two months.
“As the worst fears were not realized, investors began to close their bearish positions that they had built up before the OPEC weekend meeting,”
– Daniel Hines, senior commodities strategist at ANZ investment bank, said in a commentary.
Analysts expect oil prices to remain volatile in the near future due to a combination of geopolitical factors and seasonal fluctuations in energy demand.
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