Oil price volatility has increased in the past two weeks due to the blockage incident in the Suez Canal and an OPEC+ meeting earlier this month, Dr. Gil Michael Bufman, chief economist for Bank Leumi, wrote in a report by the bank released on Monday.
The price of brent oil decreased from about $64.12 per barrel on March 19 to $62.41 per barrel on April 2, while the price of WTI barrels decreased from about $61.42 to about $59.16 in the same period, according to Bufman.
While the blockage of the Suez Canal has been cleared, the weeklong rescue process led to concerns about severe disruptions and delays in shipping and oil supply.
Additionally, the Organization of the Petroleum Exporting Countries, Russia and their allies, a group known as OPEC+, agreed on Thursday to gradually ease its oil output cuts from May, after the new US administration called on Saudi Arabia to keep energy affordable for consumers.
The group, which has implemented deep cuts since a pandemic-induced oil price collapse in 2020, agreed to ease production curbs by 350,000 barrels per day (bpd) in May, another 350,000 bpd in June and further 400,000 bpd or so in July.
In addition, Saudi Arabia said it was phasing out its extra voluntary cuts by July, a move that will add 1 million bpd. The decision was expected as domestic demand for oil during the summer is expected as the country uses more energy. Within three months, global oil supply is expected to grow by about two million barrels a day.
Oil production in Saudi Arabia dropped by about 7% to about 9.2 million barrels per day in 2020 amid lower global energy demand due to the coronavirus pandemic, according to Bufman. Demand for vehicle and jet fuel has begun to rise recently as coronavirus restrictions in some locations are loosened. Bufman estimated that demand is expected to increase as more people get vaccinated and more people begin traveling again.
The price of natural gas in the US has risen slightly after an earlier decrease amid an increase in gas supplies that was lower than the market expectation. The price of natural gas in Europe is rising due to the cold weather the region is experiencing and therefore higher energy demands, according to the Leumi report. This may drive down the price of oil, especially if demand in European countries, which are experiencing another wave of coronavirus outbreaks, does not increase. Bufman added that the market may be able to absorb the supply increase if demand rapidly increases later in the year.
Bufman estimated that if there are no exceptional developments in the market that reduce supplies, an expected increase in US oil production will likely prevent oil prices from rising.
Meanwhile in Israel, fuel prices have risen as the country opens up following repeated lockdowns due to the coronavirus, with 95 octane increasing by 5 agorot, amounting to over NIS 6 per liter, for the first time in almost a year.
Maariv Online contributed to this report.