When Will Oil Prices Change Course Again and Gush Again?
NEW YORK ( TheStreet) -- The price of oil lost $7 of its value in the past three weeks. What has changed in the past few weeks to warrant such a sharp fall in prices? After all, the tensions in the Middle East remain high and the new sanctions that the West imposed on Russia could bring down the oil production of this country.
Will oil prices bounce back anytime soon?
Russia and Oil
The U.S and European Union recently imposed additional sanctions on Russia. Some of these sanctions could impede the future progress of Russia's oil production growth as they will include an "export ban for dual use goods for military end users and curtail Russian access to sensitive technologies particularly in the field of the oil sector."
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Thus, the ban on oil drilling equipment isn't likely to impede Russia from reaching its output of 10.55 million barrels of oil per day over the short term. Over the long term, however, this ban could reduce its growth in production.
But western oil companies such as Exxon Mobil
Based on the above, the market's reaction to the tensions between Russia and the West was harsh, which resulted in a correction to the price of oil in recent weeks.
The recent fall in oil prices brought down oil companies: BP's stock, at $48, is down nearly 10% over the last month while Chevron
Its common knowledge that when the tensions in the Middle East rise, oil prices do, too. But the recent fighting between Israel and Hamas was in a region where there is little oil. Therefore, this turn of events won't have a direct or long-term impact on oil prices. Moreover, OPEC's production remained close to its quota of 30 million bbl/day. Even the fighting in Iraq didn't lead to a sharp fall in the country's output in the past few months.
Based on the above, the global oil market is likely to further loosen, which will keep bringing down oil prices over the short term.
At the time of publication, the author was long TICKER SYMBOL, although positions may change at any time.
At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.