Market Volatility Surges as OPEC+ Extends Output Cuts Amidst Geopolitical Tensions.


 Russia oil refineries ablaze following bombing by Ukraine. 
Photo credits: The Moscow time

In a surprising turn of events, OPEC+ announced on March 2nd, 2024, that the voluntary output cuts of 2.2 million barrels per day would extend into the next quarter. This decision, contrary to market expectations, sent shock-waves through commodity markets.

Initially, the market reacted unexpectedly, with April futures for RBOB gasoline and NY Harbor ULSD plummeting by 3.6% and 3.8%, respectively, in the week following the announcement. Speculators, it seemed, had their sights set elsewhere, reacting more strongly to reports of China's crude oil import contraction, which saw a significant drop of 5.7% in the first two months of the year. However, the tide swiftly turned as April futures prices for RBOB Gasoline and NY Harbor ULSD surged by 6.9% and 6.2% respectively week-on-week in the week ending March 15th, 2024. This dramatic reversal was fueled by US inflation data for February, revealing robust job creation and a 0.4% rise in the Consumer Price Index (CPI). Such data ignited speculation about the future direction of interest rates and oil demand, indicating that rates might not decline anytime soon.

Geopolitical tensions, particularly the ongoing conflict between Ukraine and Russia, further exacerbated market volatility. Ukrainian attacks on Russian refineries on March 13th tightened oil supply chains, impacting approximately 25% of Russia's total refining capacity. As a result, oil prices continued their upward trajectory.

In this environment of uncertainty and geopolitical instability, market participants remain on high alert, closely monitoring developments that could further impact supply and demand dynamics. With the continuation of output cuts and escalating geopolitical tensions, the commodity market landscape promises to remain volatile in the coming weeks.

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