The crude oil stock change report for the week ended March 18 said that the oil costs went higher for this week. The Brent crude futures went up by 1.2% or nearly $108 per barrel. This happened a day after increasing more than 8%, the largest daily percentage increase since the middle of two years ago. The US West Texas Intermediate crude futures grew by more than 1.6% to nearly $105 per barrel. It added to the increase of the previous session. The benchmark contracts went down for the week by nearly five percent after trading in a range of fifteen dollars. The costs hit a high of more than thirteen years a couple of weeks ago. This has helped take in some profits since then. But this was still another consecutive weekly loss. This is because no simple replacement for oil barrels for Russia has been found in a tight energy market worldwide. This has also resulted in considerable volatility in the financial market.
President of Ritterbusch and Associates Jim Ritterbusch said, "Prior expectations for a Ukraine/Russian cease-fire or agreement have faded as Russian military assault on key cities continues in suggesting additional financial sanctions against Russia." Tamas Varga from PVM Oil Associates said, "Extreme volatility will continue. Volumes are not particularly high. Therefore, market reaction to new developments is violent in a relatively illiquid market."
The Crude Oil Stock Change May Be Affected by the Peace Talks
Russia has said there has still not yet been an agreement in the ongoing talks with Ukraine. The talks are going on in Turkey right now. Some signals show that a little progress has happened in the previous week. The costs of crude oil have been touching highs and lows in the near past. The fluctuations have also been because of the supply crunch from traders that are not taking in oil barrels from Russia. This has led to significant decreases in the oil stockpiles. But the crude oil stock change can experience high prices because of the recently increasing coronavirus cases in China. There is also a chance of fluctuations in the market because of unclear nuclear talks with Iran. The volatility has scared off a lot of traders from getting involved in the oil market. This has allowed for wild swings in the prices.
The output from the OPEC group also went below targets in the previous month. It was even lower than the output obtained in January. The International Energy Agency stated that the oil markets could see a loss of more than two million BPD of Russian oil from next month. The oil producers in the country have also shown a great number of restraints since the war in Ukraine started. The energy organizations in the country have decreased the number of oil rigs that are active in the nation this week. This is according to the energy services organization Baker Hughes. The consultancy FGE said that its on-land product stocks in major nations are at forty million barrels less at this point of the year compared to a few years ago.
Crude Oil Stock Change Can Face Volatility
There has been a decline and rise in the oil costs by more than thirty dollars this month. This has led several traders to exit from the volatile commodity and developed the scene for greater price swings in the coming weeks. This has been stated by experts, bankers, and investors. The conflict between Ukraine and Russia has led to commodity prices going to all-time highs. It has also stretched the finances of firms globally that consume, process, and trade raw materials. The firms have had to get more from financial institutions to finance their buying of the oil and to meet the cash requirements around their derivative and futures positions. Many commodities have also seen an increase in daily volatility.
The volatility of Brent is nearly double. This is a mark that has not been touched since the start of the pandemic. Heating oil is also experiencing similar amounts of volatility. It is being driven by the news that further sanctions may be imposed on Russia, and the peace talks are not making much headway. The risk that comes with these drastic movements has led many investors and traders to decrease their exposure to the financial markets by removing open interest in the derivatives market or trading fewer commodities. Open interest is the number of presently active contracts in the financial markets. A figure decreases when the traders look to close more positions than what is opened daily. The investors have also shifted to other choices as these contracts safeguard against major losses. But this has added to the overall volatility.
The number of open positions has decreased for all the oil futures contracts on the financial market. It has gone to levels that were last experienced seven years ago at the peak of the crash in the commodity markets. JP Morgan has stated that the open interest in commodities declined by the most in nearly fifteen years in the past week. It was led by the energy market. A trader at a big trading company said, "Open interest has collapsed. The volatility was too hard to stomach. I have to settle my futures bill before getting the money on my physical cargo. We need to downsize accordingly to ensure we don't run out of cash." The International Energy Agency said, "The cuts to open interest reduce market liquidity, aggravating volatility."
Crude Oil Stock Change Volatility Leading to Margin Calls
To a great extent, traders love when the markets are volatile. But, extreme volatility can lead to bankruptcy for any trader who remains on the wrong side of the trend. The London Metals Exchange has eliminated nickel trading for the first time in the previous week because the traders could not meet the margin calls. A Chinese producer is facing billions in overall losses. The European Federation of Energy Traders includes leading traders and oil firms. It has requested central banks and governments to give emergency assistance to avoid a huge cash shortage. The trading firm Trafigura took more funds from financial institutions in March to assist them in dealing with the growth in the costs of commodities. It has also asked private equity firms to get more cash for margin calls.
Margin calls have accumulated billions of dollars in commodities after the conflict between Ukraine and Russia started. The usual margin is cash or collateral posted by the clearing members to the clearing house. It takes care of the probable losses if there is a default from the clearing member. The margin calls happen when the overall gap between the future sale and the current spot price becomes a lot and forces the trades to increase the size of the deposit that they are holding at the financial exchanges on each of their trades. This is usually less than twenty percent of the value of the contract. It is proof that the trader can give the rest of the money to the financial exchanges. The financial exchanges have also increased the margin requirements for corn futures, Black Sea wheat, Brent oil futures, and European gas.
One of the energy producer members had given an initial margin of a billion euros in natural gas futures in the previous year. But right now, the same position needs more than five billion euros to fund it.
The total cost of maintaining the business surrounding the crude oil stock change for traders has increased by a huge margin. Moving numerous barrels of oil is now costing double as it did at the same point in the previous year. The wheat and oil futures have also gone upwards this month, which has not happened since the economic crisis fourteen years ago. Senior banking sources say that even before the war between Ukraine and Russia, trading organizations were missing out on great chances in oil trades because of limited liquidity.