Global oil prices started climbing yesterday, reversing last week’s losses as investors grappled with ongoing supply tightness which could also spell further hardship for South African motorists at the pumps next month.
The price of Brent crude oil rose above $100-mark (R1 708.90) per barrel again yesterday, on global supply concerns after US President Joe Biden’s visit to Saudi Arabia failed to yield any pledge from Arab leaders to boost production further.
Saudi ministers insisted that policy decisions would be based on market dynamics and according to the OPEC+ meeting next month.
The OPEC+ cartel last month agreed to raise output by 648 000 barrels per day in both July and August, slowly returning the nearly 10 million barrels per day it agreed to pull from the market in April, 2020.
Though Biden returned from the Middle East without an agreement to bring more oil supply to the market, the White House said Saudi Arabia committed to support global oil market balancing for sustained economic growth.
As a result, the price of Brent crude oil rose 5 percent to above $106 per barrel by 4pm as investors were spooked by the lack of commitment to an easing of global supply pressures.
Meanwhile, traders have remained wary as increasing Covid-19 cases in China and Western countries’ proposals for a price cap on Russian oil imports were raising concerns over oil demand.
UBS Global Wealth Management strategist, Giovanni Staunovo, said demand concerns have triggered a massive liquidation in oil positions by financial investors.
Staunovo said they continued to advise risk-taking investors to add long positions in longer-dated oil contracts in Brent or to sell Brent’s downside price risks.
“Europe’s plan to cut nearly 3 million barrels per day of crude oil and oil product imports from Russia by year-end will tighten the market further,” Staunovo said.
“So, we think prices need to rise higher to trigger demand destruction and bring supply and demand back into balance.”
The increase in global oil prices will most likely keep up the pressure at the pumps where drivers faced record petrol and diesel prices this month.
The price of petrol rose between R2.37 and R2.57 per litre this month, pushing the cost of fuel to a new record high price of R26.74 per litre.
This has made the cost of living more expensive as fuel cost is the most significant direct driver of inflation, whether up or down.
There was slight hope for decreases to the prices of petrol and diesel of around 15 cents per litre, and 32 cents per litre for August when Brent crude prices dipped below $100 per barrel.
The drop in international petroleum prices was driving the decreases, however, this was offset by a weaker rand/dollar exchange rate.
Brent crude prices have remained elevated in spite of easing since the highs of about $130 per barrel in March, during the early weeks of the war in Ukraine.
FNB head of trade and structured trade and commodity finance, Bobby Madhav, said the rising fuel prices could also put the brakes on global trade.
Madhav said the effect of increasing fuel costs on trade flows was a lot more difficult to quantify than it was at a consumer level, as fuel was just one of many input costs.
“The reality is that we are facing the potential for declining global trade; but there’s far more behind it than just the higher cost of filling up a cargo ship,” Madhav said.
“Unless a way is found to stabilise fuel prices soon, the negative impact they will have on entire economies and the world’s consumers will massively overshadow those they will exert on global trade volumes,” he said.
BUSINESS REPORT