Brent Crude Oil Volatility: A Sign of the Times, or Media Sensationalism?


Oil prices have returned to the levels of volatility which occurred during the early part of 2022, with a sudden drop on Friday last week to USD 69.16 per barrel from USD 76.72 per barrel on Wednesday June 21.

The downturn in value began to take place between Wednesday and Thursday, with Brent Crude Oil prices resting at USD 73.24 at the end of the trading day on Thursday.

By the end of the trading week on Friday, crude oil prices had dropped to over USD 7 lower per barrel compared with just two days earlier.

Throughout modern history, the price of oil has been affected tremendously by geopolitical events because the Western countries which import it from OPEC+ countries that manufacture it have had a tumultuous relationship.

Such political relations have a well understood impact dating back as far as 1973 when the first ‘fuel crisis’ occurred as a result of a trade embargo imposed on the United States by Arab members of the OPEC (Organization of Petroleum Exporting Countries) due to the supply of military aid and equipment during the 1973 Yom Kippur war between Israel and a coalition of states led by Syria and Egypt.

This was seen as a bargaining tool because it restricted the supply of a consumable commodity which is vital for energy resources, creating restrictions on travel, a 55 MPH speed limit and, most importantly, rocketing fuel prices.

Since then, many such examples of similar circumstances have come about. Now with crude oil once again volatile, this time in a downward direction, speculators are looking at the perceived political altercation in Russia, one of the world’s most important oil producing countries, between the privately owned Wagner group and the country’s official army.

Some news channels painted a sensationalist notion that the country began to head toward a civil war, however, this could not be further from the reality. There is no unrest and no citizens are attempting to turn against the nation or its government, or vice versa.

The drop in oil price came about just as this type of reporting was being released, however the news channels have toned their prose down considerably and are now reporting that the dissidence by some of the Wagner senior executives constitutes a ‘revolt’ rather than an example of civil war.

The result of this is that oil prices have begun to steadily climb, giving rise to the notion that the sudden drop by such a significant amount is over for now.

The price of Brent Crude Oil is still below the USD 70 per barrel mark, but certainly as the week starts, it looks as though the freefall is over.

There is far more to this than just some tabloid hyperbole, however. Oil producing nations had been scaling back their production in order to curb a previous fall and attempt to bolster prices to USD 85 per barrel in April this year.

At that time, Russian officials publicly announced that the American banking crisis was one reason for cutting oil production, as a perceived lower demand would have been potentially likely following such an effect on a major financial economy. At the time, the price cap imposed by Western government on oil from Russia was a factor. Oil companies did not want to sell their oil to nations which dictated a low price for a commodity that can be sold on the open market at market price to non-NATO nations.

Even so, since April’s USD 85 per barrel spike, Brent Crude Oil prices are significantly down globally.

Now, the price is climbing gradually. A 0.4% increase was recorded this morning as the situation between Wagner Group and the Russian government has been resolved, and the speculation and sensationalism has dispersed.

Let's not forget economic factors in Western countries. Both Brent Crude and WTI reduced in value by 3.6% last week, partially due to concerns that more interest rate hikes would be imposed by the U.S. Federal Reserve, resulting in businesses and individuals having to tighten their belts further.

Yes. The news channels were awash with speculation and sensationalism; however, the Western economies are blighted by high interest rates, high cost of living and national debts which are all factors which generally affect oil prices.

Volatility is back – the question is, which way will it go next?

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This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.

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