Investor Sentiment and its Influence on Oil Prices

Oil prices strengthened their positions on Friday thanks to investors. They bet that potential coordinated releases by the U.S as well as other countries of their strategic reserves may have less of an impact on markets than anticipated.

On Friday, Brent crude futures gained 77 cents or 0.9% to $82.01 a barrel by 07:33 GMT. One day earlier, Brent crude fell to its lowest level in six weeks before rebounding to close 1.2% higher.

U.S. West Texas Intermediate (WTI) crude for December was up 79 cents or 0.1% to $79.80 a barrel.

Today is the last day for the December contract. The most trading activity shifted to the January future. It rose 73 cents or 0.9% to $79.14 a barrel. Both Brent as well as WTI are on course for the fourth week of declines.

Oil prices and the world’s biggest economies

President Joe Biden’s administration is trying to tackle issues created by oil prices. The administration’s push for a coordinated release of oil stockpiles is a signal to OPEC. The organization should increase production to address concerns regarding high fuel prices in the biggest economies.

Brent jumped almost 60% this year as countries require more and more oil as their economies continue to recover from the pandemic. In the meantime, OPEC and its allies known as OPEC+ raised output only gradually. Two days ago, the United Arab Emirates’ energy minister Suhail al-Mazrouei stated that OPEC intends to “follow the facts”.

Importantly, the market structure for Brent remains backwardated, which is when prompt prices are higher than later-dated futures. In such cases, oil demand is higher than supply. It is worth mentioning that, the backwardation fell amid the swings over the last two sessions, a sign the tightness in the market is easing.

We shouldn’t forget about the price difference between the front-month Brent crude contract and the one for six months later. The difference was $4.30 a barrel. It fell from a recent eight-year high of $6.30. Physical crude markets also showed some easing according to traders.

OPEC kept unprecedented restraint on production, even as oil prices rebounded from the depths of the early stages of the pandemic. Saudi Arabia’s oil exports jumped to an eight-month high in September, rising for a straight fifth month. The country played an important role by keeping prices in check.