Brent is perched on the US$ 68 level per barrel for a long time now, and it has been unusually range-bound. But its ability to rise cannot be easily ignored. This is because, if you go by the indications from the market, buying of petroleum futures contracts has accelerated in the last three weeks, and this may indicate an increasing probability of prices rising in the near future. Net long positions in crude oil futures has gone up to a two-month high. This buying in the futures is prompted by the opening up of many economies, and the likelihood of larger number of people taking to the highways and holidays as the weather turns from spring to summer very soon in the Northern hemisphere. This will have a direct impact on the demand for fuel and therefore, the prices.
There are also reports of a proposed legislation in the US Congress called NOPEC which seeks to make OPEC subject to the US Anti-Trust Law. If OPEC is subject to American law, then it can be sued for cartelization and price manipulation, and interference with market forces. While it is practically difficult for the US law to regulate an international grouping like the OPEC, it also goes against the US principle of free markets and price discovery. Therefore, the practical applicability of the law is suspect in matters of international trade and dealings. But there is a strong view that with the Biden administration focussing on climate change and reduction of emissions over a period of time, more controls on oil trade is likely to come in faster than expected. It is less likely that OPEC would be moved in any way by this proposed legislation.
There have been some unexpected disruptions in fuel supply in the last few weeks. The most prominent among this was the cyber-attack on the largest gasoline pipeline on the East Coast, Colonial Pipeline,5,500-mile, the single largest refined-products pipeline in the US. The network is important for the US as it supplies 2.50 million barrels per day of gasoline and diesel. The cyber-attack is being thwarted and the supply lines are being restored. This incident has brought to the fore the need for enhanced surveillance of such critical facilities in future.
The weakening of the US Dollar which has been happening in the last few weeks is also a factor that may support elevated oil prices in the coming weeks. This along with the prospects of more people on the highways may keep prices from coming down much.
