The US crude oil futures rose to reach a 14-month high of $100.64 a barrel and gained by more than $1 on Wednesday. Similarly, the WTI crude front-month contracts too soared by 2.40% to trade at $101. 9, while the Brent crude climbed by 1.13%. The US crude oil prices had been languishing in the month of May between $96 and $98, while in June it was hovering around $99.

This sudden rise in Black gold’s prices past the $100 mark is attributed to a sharp drop in the US industry crude oil stockpiles. According to the American Petroleum Institute (API) that released a report on late Tuesday, the crude oil inventory has sharply declined by 9.4 million barrels in the week ending on June 28. This has definitely created a supply crunch in crude oil and reacting to it the prices of US crude Futures have spiked immediately.

Crude oil prices, like most commodities are based on a simple principle of demand and supply. If global demand increases or the supply gets reduced the crude prices will increase. On the other hand, if the there is a slowdown in demand or if the supply overwhelms and exceeds demand the Crude prices will decline. Let us now find the reason behind this sudden spurt in crude oil prices.

The Middle East and North Africa called the MENA region is very important for the global supply of Crude oil. Recently, there has been some trouble brewing in Egypt part of the strategic MENA region. There have been some furious anti-government protests in Egypt backed by a military ultimatum to the President to fix the political issue in a matter of 24 hours. There is good chance of the military replacing the present government, creating instability in the key region that controls important passage to crude oil supplying countries.

Meanwhile, in the civil war-torn Libya protests have effectively shut down several oilfields, whereas the oil exports from Sudan are in turbulent waters. These developments have definitely reduced and threatened to disrupt the global crude oil supply. And the markets reacting sharply to these events have created a rally in the crude oil futures prices.

However, one has to closely scrutinize if there is any real rise in demand in the crude oil consumption on a global scale. The recent reports suggest that the oil demand is in a clear downtrend. According to National Bureau of Statistics (NBS), the Chinese PMI index for the month of June sank to 53.9, from its May's PMI reading of 54.3. This clearly shows a possible slowdown in Chinese manufacturing sector- the biggest Asian oil consumer.

Meanwhile, in the Euro Zone countries plagued by recession are struggling to revive the economic growth.  Especially, the PIIGS—Portugal, Ireland, Italy, Greece, and Spain that are facing a serious economic downturn, have displayed a steep drop in oil consumption due to sharp decline in industrial outputs.

Hence, this rise in the crude oil prices can only be considered as a short rally in response to supply concerns from the MENA region, coupled with a sharp fall in the API U.S crude oil inventory. With the EIA (Energy Information Administration)reports for the U.S crude oil inventory due this week, much is to be seen in the coming few days.

Note: This blog is just an expression of the author’s opinion and cannot be deemed responsible for any losses incurred.