Oil Prices Rise as US Supply Worries Rise: How Does This Affect Commodity Trading?

Oil prices have risen recently as concerns about declining US oil supply have grown. The market is also hoping that demand from China will pick up soon, which would help support prices. Many analysts expect oil prices to continue to rise in the coming months as global supply remains tight. If you are interested in commodity trading, this information could be useful.

What is Commodity Trading?

Commodity trading typically involves dealing with raw or unprocessed materials, such as wheat, crude oil, and gold. Commodities are traded in large quantities, such as barrels of oil, bushels of corn, and kilograms of wheat.

Once the contract is ready, you can either take physical possession of the product or pay in cash. You can also use exchange-traded funds and notes to profit from price fluctuations without investing directly in futures or derivatives.

Why the concern of the United States?

The cost of oil rose for a straight day on Tuesday as America’s main supply pipeline was idle, with expectations that China will reduce COVID lockdown regulations to increase demand. As the largest consumer of crude on Earth, the activity of the United States significantly influences this market; China is another major player in global consumption.

Brent crude oil futures rose 0.8% in the international market, hitting $78.63 a barrel at 02:02 GMT on Tuesday; with US crude West Texas Intermediate (WTI) following suit and recording a 0.9% increase, up to $73.81 a barrel as a result.

The closure of TC Energy Corp’s Keystone pipeline, which transports nearly 620,000 barrels a day of Canadian crude from Alberta to the United States, has tightened oil supplies and increased the possibility that stocks in Cushing, Oklahoma , begin to wear out. Notably, Cushing is also the delivery point for WTI crude futures.

Since the leak of 14,000 barrels in Kansas was detected on December 7, Keystone is no longer operational. TC Energy Corporation has not yet provided an estimated timeline for when it expects the pipeline to resume operations; this line must be reactivated as soon as possible because it supplies crude oil to refineries in the Midwest and Gulf Coast regions.

Market expectations assume that the closure of the pipeline will lead to a decrease in crude oil inventories in the United States. The average opinion of seven analysts polled by Reuters is that inventories fell 3.9 million barrels in the week ending Dec. 9.

In preparation for the American Petroleum Institute report released on Tuesday and the statistical arm of the US Department of Energy, the Energy Information Administration report was due out on Wednesday, and a poll was conducted beforehand.

Bank of America analysts say China’s re-emergence from its pandemic-induced restrictions and a change in Federal Reserve strategy on interest rates could trigger an increase in fuel consumption that would likely push oil prices higher. Brent oil above $90 a barrel.