Oil falls on fears of a global recession
World oil prices are gradually decreasing. On July 14, September futures for Brent crude fell to $97.1/barrel, which is $2.4 (or 2.5%) below the closing price of the previous session. The price of futures for the American grade of WTI decreased to $93.6/bbl. (-2.8% compared to the previous session). At 15:00 Moscow time, Brent cost $97.2/bbl. WTI – $94/bbl.
Brent fell after data on rising inflation in the US strengthened expectations that the Federal Reserve System will continue to aggressively raise interest rates, Bloomberg reported on July 14. “Concerns about the influence of high inflation on economic growth and demand for oil are growing noticeably,” the agency quotes the words of the analyst of the brokerage company PVM Oil Associates Ltd. Tamas Varga. Consumer inflation in the USA at the end of June renewed the record of 1981, reaching 9.1%, according to data from the US Ministry of Labor.
Wounds analysts of the American bank Citigroup Inc. predicted that by the end of this year world oil prices may fall to the level of $65/barrel. because of the recession in the world economy, which will lead to the destruction of demand. This forecast was based on a scenario that excluded the intervention of OPEC+ countries in the market and assumed a decrease in investments in the oil and gas industry.
As “Vedomosti” wrote, due to the beginning of a special military operation (SVO) in Ukraine, many Western countries began to refuse to import Russian oil. The USA and Great Britain announced a full embargo on Russian oil at the beginning of March, and the European Union was only able to agree on a partial ban on sea deliveries of oil from the Russian Federation as part of the sixth package of anti-Russian sanctions on May 31. At the same time, the restrictions on deliveries via the Druzhba oil pipeline with a capacity of 720,000 barrels per day will come into effect at the end of February 2023.
But, as the International Energy Agency (IEA) noted in its June report, attempts to “punish Moscow” by banning oil imports from Russia “only aggravated the supply crisis and led to an increase in prices.” From February to June, the price of Brent rose by 31% to $121/barrel, and WTI – by 22% to $118.
“Veles Capital” analyst Yelena Kozhukhova connects the drop in oil prices with concerns about the reduction in demand for hydrocarbons in the conditions of a potential slowdown in the world’s largest economies. “The fact of the limited supply of oil after the introduction of anti-Russian sanctions was taken into account in the prices, due to which the risks are shifting to the downside,” she clarifies.
Kozhukhova also notes that prices may stabilize below $80/barrel if there are no positive signals regarding the slowdown of inflation in Western economies and the suspension of tightening monetary measures.
According to Sergey Grishunin, managing director of the NRA rating service, by the end of this year, oil prices will drop to $80-85/bbl. due to the long-term recession in most developed countries. “The statement of the head of the WHO about the threat of a second pandemic also played against the price of oil [COVID-19]. If it really starts, the recession can turn into a full-fledged economic downturn not only in the G7 countries, but also in China,” he explains.