To the relief of everyone reading this article, global oil prices dropped on Thursday to their lowest levels since before Russia invaded Ukraine in February.
As traders worried about the likelihood of an economic recession later this year that could scuttle demand for energy, prices fell to their lowest since Feb 18.
The sudden fall in oil prices will come as a relief to large consumer nations, including the United States and European countries.
These countries have urged producers to ramp up output to offset tight supplies and combat inflation.
Earlier in the year, oil had surged to well over $120 a barrel.
During the early days of the COVID-19 Pandemic, the demand was lower. The rebound in demand overlapped with supply disruptions due to Russia’s invasion of Ukraine.
Current Demand
The selling on Thursday came after an unexpected increase in U.S. crude inventories the previous week.
The Energy Information Administration had stated that the demand had slowed when gasoline prices were near $5 a gallon.
The demand decline and gasoline stocks also created an unexpected build.
The Energy Information Administration had stated that the demand had slowed when gasoline prices were near $5 a gallon.
However, the demand outlook remains clouded.
Future Demand
The picture is clouded by growing concerns about an economic downturn in the United States and Europe, debt problems in emerging market countries, and China’s rigorous zero COVID-19 policy, which makes up the majority of the world’s oil imports.
“A break below $90 is now a very real possibility, which is quite remarkable given how tight the market remains and how little scope there is to relieve that,” said Craig Erlam, senior market analyst at Oanda in London.
“But recession talk is getting louder, and should it become reality, it will likely address some of the imbalance.”
The Bank of England (BoE) increased interest rates on Thursday as they spoke about the risk of recession.
Many analysts view the OPEC+ agreement made on Thursday as bearish. The agreement was based on increasing the output target by 100,000 barrels per day (BPD), which is about 0.1%, beginning in September.
Informed sources believe that if needed this winter Saudi Arabia and the UAE will step in to supply a significant increase in oil output.
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References:
https://www.reuters.com/markets/commodities/oil-prices-rebound-after-dropping-lowest-months-weak-us-demand-2022-08-04/
https://www.cnbc.com/2022/08/04/oil-markets-demand-global-economic-slowdown-supply.html
https://money.usnews.com/investing/news/articles/2022-08-03/oil-prices-rebound-after-dropping-to-lowest-in-months-on-weak-u-s-demand
