BAKU, Azerbaijan, Dec.19
By Leman Zeynalova – Trend:
A tightening of the US Federal Reserve policy may trigger an outflow of speculative capital from the oil market, Russia’s Lukoil company said in its report on Major Trends in the Global Liquid Hydrocarbon Market to 2035, Trend reports.
Lukoil believes that the US exchange rate, in relation to other currencies, is also capable of strongly influencing the oil market. “Oil delivery contracts are, for the most part, denominated in USD, therefore a stronger dollar results in a higher cost of oil for non-US consumers. This trend has been highly apparent since 2015.”
On the time horizon until 2035, the US dollar will retain its leading role in international settlements and continue to influence oil pricing, according to Lukoil.
“We expect the volatility of oil prices to continue into the future. However, having the OPEC+ Agreement in effect is sure to make price fluctuations less intense,” said the company.
Traditionally, one of the most important factors that directly affect the oil market is the escalation of geopolitical conflicts, which often results in disruptions in oil supplies, reads the report.
“This factor often leads to price volatility. A striking example of geopolitical risk is the attack on the oil infrastructure of Saudi Arabia in September 2019, which resulted in a record 6 mb/d increase in global supply disruption. Even though the disruption of supplies in Saudi Arabia was promptly overcome, often disruptions of supplies can continue for a protracted period of time. The introduction of US sanctions against Iran in 2018 forced over 1 mb/d from the oil market. The timelines for such volumes re-entering the market remain highly uncertain.”
Moreover, as Lukoil said, currently, trading with derivative financial instruments that do not require physical supplies of oil significantly exceeds the volume of physical trade.
“In the last few years, the volume of oil trade on the largest exchanges has continued to grow exponentially. With speculative goals in mind, participants in the financial market can, during certain times, cause oil prices to fluctuate even more. The tendency towards higher numbers of traders that rely on algorithms in their financial transactions contributes to price volatility in the market.”
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