The CBOE Crude Oil Volatility Index has increased to its highest level since the end of July, exceeding 44 points. In August, the index fell to around 30 points and was the lowest since January 2020. Several factors seem to influence oil prices.
Last week, the WTI oil price fell from USD 43.60 to USD 39.60 per barrel. This week seems to be a continuation of the recent drops. Oil prices are falling for the fifth consecutive day on Tuesday. One of the main reasons might be the end of the summer car driving season in the US and the fall of oil imports by China.
China announced that in August it imported 11.18 million barrels of oil, less than in July — 12.08 million barrels and below the April record — 12.94 million barrels. The market sentiment may also be affected by the upcoming maintenance of refineries in the US. Reuters has reported that this may reduce demand for oil by 1.5-2 million barrels per day.
Meanwhile, on Monday, Saudi Arabia lowered the October official price of light oil sold to Asia. Investors may read the price cut as a sign of uncertainty about the revival of demand. We are talking especially about the demand from transport, which accounts for over 60 percent of total demand for oil.
At the same time, tensions between India and China have intensified. On Monday in Beijing, Indian troops were accused of violating a bilateral agreement and fired warning shots during a confrontation at the disputed border.
In addition, US President Donald Trump announced that economic relations with China would be restricted. Trump said he intended to slow down U.S. economic relations with China, threatening to punish any U.S. companies that create jobs abroad and prohibiting those that do business in China from obtaining federal contracts. He didn't say when he would implement this policy, but he described these actions as part of the second term agenda, Bloomberg said. On top of that, there is the ongoing fight against coronavirus before the autumn flu season, which also introduces uncertainty and nervousness to the market.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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