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17 November 2022,02:54

Weekly Outlook

Geopolitical Headwinds Overshadow Crude Inventory Drop

17 November 2022, 02:54

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On Wednesday evening, the EIA Crude Oil Inventories was released, with a draw of 5.4 million barrels – almost 5 million higher than the expected draw of 440,000 barrels. This puts current inventories at 435.4 million barrels, 4% below the 5-year average for this time of the year. 

Normally, a larger-than-expected drop in the crude oil inventories reported by the Energy Information Administration signals an increase in demand that is bullish for crude. This time, however, several pieces of global news are putting downward pressure on oil prices. 

Post-Market

On the forefront of every oil trader’s mind is the news that a “Russian-made” missile landed and exploded in Poland, killing 2 and raising allegations of a Russian attack on the NATO country. Both NATO and Poland have since reported that the missile explosion was likely an accident, with the ammunition originating from Ukrainian air defences – something that Ukraine itself denies.

Meanwhile, the Druzhba pipeline, which is the primary artery transporting Russian oil across Europe, has re-opened shortly after several parts were suspended following “technical issues”.

A surge in covid cases in China is not helping oil prices too, with daily numbers hitting over 20,000 – the highest since April.

Currently, it looks like supply issues are being kept in check by demand destruction, with some of the primary movers being the Russia-Ukraine war and a global economic slowdown on opposite ends of the lever. 

In the short term, two primary needle movers will be the inevitable spike in energy prices due to winter; and the EU’s upcoming ban on seaborne Russia crude – which comes into effect on 5th December.

5th December is an important day for oil investors – especially since that is when the G7 cap on oil prices will take effect. Look out for whether Russia stops selling oil in response to the cap, and which countries will continue buying after that. 

As a  friendly reminder, do keep an eye on market changes, control your positions, and manage your risk well. 

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