In recent months, oil market has witnessed significant price changes as a result of several economic and geopolitical factors. The most prominent of these factors is the performance of oil futures contracts, which show significant impacts on future crude oil prices, as well as direct impacts on global markets.
Among the most notable developments in oil markets in the last two months was the remarkable rise in oil futures prices. In February 2024, the price of US light crude oil (WTI) rose to $70.10 per barrel, representing an increase of 0.09% compared to the previous month. This increase came despite the ongoing volatility in global energy markets, reflecting a slight improvement in the outlook for oil markets.
However, this rise was not limited to US oil only, but also extended to global crude oil. Brent oil futures for March 2024 saw a 1.24% increase, reaching $73.22 per barrel. This rise in oil prices is attributed to several interrelated factors, such as the improvement in global demand for oil and OPEC+ decisions regarding oil production, in addition to the relative stability in the geopolitical regions affecting oil supplies.
Data shows that the price differential between US oil (WTI) and Brent oil remains stable within a certain range. In this context, the cost of the difference between Brent oil futures and US light crude oil reached $3.12 per barrel. This indicates that the difference between the two types of oil, despite the increases, is still relatively flexible, as the disparity between them reflects differences in supply and demand in both local and global markets.
As for US oil contracts “WTI”, the price of February futures increased by 0.09% to reach $70.10, reflecting market optimism about price stability in the near future.
Factors affecting global oil market
Many factors contribute to determining the movement of oil prices, the most prominent of which are:
1. Geopolitical factors: Military conflicts or economic policies decided by major oil-producing countries, such as Saudi Arabia and Russia, are among the most prominent factors affecting prices. For example, OPEC+ decisions to reduce production, as well as sanctions imposed on some oil-producing countries, may contribute to reducing supply in the market, leading to higher prices.
2. Global demand: Global demand for oil is a major factor in determining prices. Any increase in economic activity, whether in major countries such as China or India, can lead to increased demand for oil and thus raise prices. However, in cases of economic recession, demand may decline and prices may be negatively affected.
3. Climate conditions: Natural disasters, such as hurricanes in the Gulf of Mexico, may directly affect oil production in certain areas, leading to a shortage of supply and higher prices. In addition, climate changes in some areas affect demand for alternative energy, which may affect oil prices.
4. Financial Markets and Macroeconomics: Changes in financial markets and macroeconomics indirectly affect oil prices. For example, changes in the value of the US dollar can affect oil prices. Since oil typically trades in dollars, a stronger dollar can make oil less expensive for importers who use other currencies, which boosts demand for oil.
Oil Futures and Their Impact on Future Prices
Futures contracts are agreements to buy or sell oil at a specified time in the future at a currently agreed price. These contracts are an important tool for investors and speculators in energy markets, enabling them to take positions based on expectations of future prices.
Brent and US Oil Futures Spread
The spread between Brent and WTI oil futures is a key factor in determining how investors behave in oil markets. The spread refers to the difference between the prices of two different types of oil (Brent and WTI) at a given time. In the last two months, this spread has been around $3.12, indicating that there is no significant fluctuation between the two types of oil in the futures markets.
However, this spread may change based on several factors, such as changes in production levels in major producing regions, or changes in demand levels in global markets. In this context, the spread between Brent and WTI oil remains flexible, reflecting the balance of supply and demand in global oil markets. The price of futures contracts directly reflects supply and demand in the spot market, along with additional factors like oil inventory data and production reports. Accordingly, the rise in oil futures contracts may be an indication of expectations of improved demand for oil in the coming months or expectations of reduced supply.
Oil Market Outlook
Given the current global economic conditions, the aforementioned factors are expected to influence oil markets. Oil prices are likely to continue to fluctuate in the near future, with geopolitical factors such as OPEC+ oil production decisions and the effects of climate change on supplies likely to continue to influence them.
Moreover, many analysts suggest that oil markets will continue to see a discrepancy between oil futures prices and their spot counterparts, as investors seek to profit from potential future price changes.
Oil markets remain highly global, with price changes affecting the economies of both producing and consuming countries. This means that any changes in oil prices can have broad implications, not only for the global economy.
