Global Oil Prices Vs. Supply Disruption & Increased Production

Commodity markets are more focused on the Russia-Ukraine situation than on the disappointing manufacturing data from China. The eurozone continues to threaten more sanctions against Russia as President Putin hits back. The European Union is giving Russia a one-week ultimatum to scale back its intervention in Ukraine or face additional economic sanctions.

EU summit chairman Herman Van Rompuy said early Sunday that the bloc’s 28 leaders tasked its executive body to “urgently undertake preparatory work for consideration within a week.”  Fears of an economic backlash, the EU leaders shied away from immediately imposing tougher sanctions. Russia is the EU’s No. 3 trading partner and one of its biggest oil and gas suppliers.

The developments come after NATO, in a blunt statement Friday, condemned Russian military action in Ukraine, saying its troops have “illegally crossed the border” as part of a “dangerous pattern over many months” to destabilize its neighbor.

Crude oil eased 18 cents this morning after climbing over $1.00 on Friday and is trading at 95.78 while Brent oil climbed by 20 cents to trade at 103.27 both trading above their August trading range. In comments recorded on Friday but broadcast on Saturday, Vladimir Putin did not directly address sanctions but blamed the crisis in Ukraine on the west, accusing it of supporting a “coup” against pro-Kremlin president Viktor Yanukovych in February.

“They should have known that Russia cannot stand aside when people are being shot almost at point-blank range,” said the Russian president, adding that he did not have in mind “the Russian state but the Russian people”. Putin called for immediate talks on the future of east Ukraine, saying for the first time that “statehood” should be considered for the region.

An interesting assessment of the global market is helping oil traders relieve the angst over potential supply demand. A report printed in the Arab Times  said that there should be no anxiety over the global price of oil for the rest of 2014, predicted an expert, who viewed that prices would not fall below the $ 100 mark in spite of their recent drop to just below that. One of the main reasons of this is the significant increase of global production leading to an overwhelming output. The recovery of production in Libya, after their recent political revolution, has increased output from 70,000 barrels a day to around 550,000 barrels.  Meanwhile in Iraq, production has not been affected by the threat of armed terror Islamic State jihadists, formerly known as ISIL, while production in Saudi Arabia has increased considerably. Member nations of the international producing bloc, OPEC, have also increased their production as have non-member states, which include Libya, Nigeria and Angola. Despite the severity of geopolitical events worldwide their effects on crude supply have been limited and almost non-existent.