Here's why are Oil prices rising?

All eyes are on the crude oil again. After pausing inside USD 40-55 a barrel for a quite long time, U.S. WTI light crude prices rallied to USD 66 a barrel in late January.The Asian benchmark ICE Brent, traded above USD 70 a barrel, with a premium against the US WTI (light crude). In the domestic market, tracking overseas prices coupled with weak rupee, the most active MCX futures are hovering near its highest level since mid-December 2014.

Here are the major reasons that lead to hike in oil prices:

1. Sanctions on Venezuelan oil industry

The major trigger that sent crude prices north is political and economic instability in Venezuela, a major petroleum exporting country. Further aggravating the situation, the Trump administration is threatening Venezuela with new sanctions that could come as early as next week. India imports significant quantities of oil from Venezuela and Iran.

2. Tensions between Saudi Arabia and Iran

Increased instability in the Middle East is alarming the global oil market. Tensions between Saudi Arabia and Iran have emerged again recently after the Saudi Crown Prince visiting the US President, considers ending the Iranian Nuclear deal. Intensifying Libyan conflicts also aided to the sentiment.

3. Limiting supply, increasing demand

With a view to rein global excess supply and lift prices, OPEC and other top oil producers including Russia have been limiting daily crude production by 1.8 million barrels since last year.

4. US oil production

US oil production has been rising for the last several months. Steadily rising oil prices encourages US shale oil producers to increase output, driving US oil production to record levels.



Looking ahead, the ongoing positive outlook is less likely to prevail unless the looming geopolitical tensions continued. Drop in supply due to restricted production from OPEC and Russia is likely to be balanced by higher US Production.
In the meantime, factors like developments on trade war between US and China, intensifying tension in the Middle-East and global demand-supply imbalances would set a direction for the oil market later.

Rising crude oil prices have impacted both domestic and global markets. The S&P BSE Oil and Gas Index has lost nearly 11 percent YTD.
In India, rising crude oil prices have also contributed to the depreciation of the rupee, which has fallen 13 percent this year.