The famous “black gold” – the colloquial name for crude oil – is among the world’s most precious commodities. Any changes in the price of the commodity can impact the economic ecosystem at every stage, all the way to the macro level of a nation’s gross domestic product to the micro-level of the average family’s budget. Any sudden spikes or unexpected price drops can easily send an entire nation in a tizzy. Crude oil prices are quite volatile and change quite frequently in response to any policy changes, news cycles, and fluctuations in the world’s markets.

In fact, since 2014, crude oil prices have been on a downward journey. They have fallen from their highs of about $105 per barrel in that year. When it comes to the impact this year, in February and March of 2020, black gold saw an acceleration in price decline. This was very clearly a response to the spread of the coronavirus pandemic. Even the expected drop in the demand for oil had been sharp. Additionally, any major oil manufacturers could not come to any agreements regarding production cuts, and this further exacerbated the drop in crude oil prices. By the middle of March, crude oil prices were fluctuating at just around $30 per barrel.
On August 17th, 2020, crude oil prices climbed higher as China has started planning to ship large volumes of crude oil in both August and September. Specifically, Brent crude oil prices rose by 0.5% or 21 cents (₹13) to around ₹45.01 a barrel at around 0023 GMT. On the other hand, U.S. West Texas Intermediate crude was up by 0.6% or 27 cents to a total of $42.28 per barrel. This sentiment fostered by this decision on China’s part has outweighed the concerns of a slowdown in recovering the demand for crude oil which had been severely lowered by the global impact of COVID-19.

The spike was seen as a result of Chinese-state owned oil companies provisionally booking tankers that are to transfer at least 20 million crude oil barrels of U.S. for the months of August and September. This was reported by Reuters last Friday which could be the reason behind the spike seen the following Monday. China has also ramped up energy and farm-related purchases in front of a review of the Sino-U.S. trade deal. Crude oil prices have been supported by the easing of COVID-19 restrictions globally as the world\’s top importer, China, has shown enthusiastic trade plans for the next two months.

However, consumption may be somewhat cooled again by the outbreaks of COVID-19 in several countries including the U.S. In terms of the long term impact of 2020 on crude oil prices, according to ANZ, the demand has risen by about 8 million barrels of crude oil a day in just the past four months. Now, the current global demand stands at about 88 million barrels per day, which is still 13 million short at the same time last year. Investors are seeking out more clues regarding the future supply through a meeting that will be held in the ongoing week by a panel of ministers from OPEC.

OPEC is the ‘Organization of the Petroleum Exporting Countries’ is considered the authority on the status of crude oil production, demand, and supply. OPEC’s allies, otherwise referred to as OPEC+, will also be represented by the panel. The meeting has been scheduled for August 19th. Even though a small spike was observed this past week, the number of operational natural gas and oil rigs in the United States still remains anchored at a record low for its 15th time. However, the increase in oil prices may have prompted some producers to begin their drilling and treatment operations again.

In conclusion, when it comes to the projected future of crude oil prices, one cannot ignore geopolitics. Geopolitical events in the past have majorly disrupted supply and caused oil prices to shift drastically. These include the Iranian revolution, the Arab oil embargo, Iraq-Iran war, the Persian Gulf wars, and more, which have notably impacted crude oil prices. Asia’s financial crisis as well as the infamous 2008 US financial crisis have also resulted in major fluctuations. Hence, investors should keep the crucial fact in mind that OPEC’s policies are impacted by any geopolitical developments.