Over the last few days, the international community has been watching another plunge in the global market of crude oil. At this point, the price drop has been suspended and the price is currently trying to recover a bit of the value lost over the last couple of days.
In particular, Brent oil found the bottom at $57,72/b. The price started advancing after the start of Thursday’s trading session. This took place amid the news that the USA is expanding its crude oil inventories while the Chinese stock market is having difficulty finding the bottom after a couple of weeks of market weakness. After the major Chinese stock indexes lost over 1/3 of their value, the Chinese authorities decided to ban public Chinese companies from trading their stocks. This is an attempt to fight to plunge and reduce the volatility.
On Wednesday, the IEA reported that the U.S. crude oil inventories expanded by 0,4 million barrels over the past week. As of July 3rd, the figures were equal to 465.8 million barrels. It should be noted that the analysts had expected a 0.7-million drop, which means that the prediction failed.
Judging by the official figures provided by the IEA, the gasoline inventories expanded by 1,2 million barrels. At this point, the inventories are equal to 218 million barrels. At the same time, U.S. oil companies keep on boosting their oil production. Apparently, all of this contributed to the recent plunge on oil prices worldwide (the excessive supply keeps on growing and pressing oil prices).
At the same time, smart investors are watching the situation in China. China is one of the biggest consumers of crude oil in the world. This means that any economic slowdown implies less oil consumed by it, which in urn affects oil prices. As you probably know, China is currently having difficulty fighting the local stock market crash. Even though this plunge is triggered by a shadow banking bubble and doesn’t mean that the entire Chinese economy is about to shrink as well, it still may affect oil prices in the near future.
The Chinese stock market plunge is expected to continue unless the local government takes a series of urgent steps to support the market. Some steps have already been made. In particular, public Chinese companies cannot temporarily trade their stocks. At the same time, there is an emergency fund created to buy Chinese stocks if necessary. In should be noted that the plunge may affect a lot of economies, including the Australian one, which is heavily dependent on the export of commodities to China.
Meanwhile, Iran seems to have all chances to return to the global market of crude oil as a major player. If to consider all of these factors altogether, the bias is bearish However, the situation may change in the future.
