Currently, a plethora of factors are weighing on crude prices, ranging from lower demand to supply cuts, and from recessionary fears to interest rate hikes.
Crude oil prices have fallen by nearly 9% in the last 8 trading sessions. Brent crude oil dropped to around $89 per barrel from $97, while WTI fell from $91 to $83. Crude oil prices have been falling for the past three consecutive months after touching multi-year highs in March and currently are at near an seven-month low.
Despite OPEC+ production cuts, oil prices continued to fall. On Monday, oil prices rose 4% after OPEC+ members agreed to cut output by 100,000 barrels per day for October, amounting to only 0.1 percent of global demand. However, oil prices have dropped by nearly 7% since then.
On Thursday, the ECB raised interest rates by an unprecedented 75 bps. The main refinancing rate now stands at 1.25 percent. Policymakers also said that interest rates should rise further over the next several meetings, aiming to dampen demand and guard against the risk of a persistent upward shift in inflation expectations.
Food and energy price increases drove up inflation in the Eurozone to 9.1 percent in August, up from 8.9 percent in July.
The ECB lifted inflation projections to average 8.1% in 2022, 5.5% in 2023 and 2.3% in 2024, while growth was revised lower to 3.1% in 2022, 0.9% in 2023 and 1.9% in 2024, according to European central bank data.
In its July 2022 meeting, the ECB raised its 3 key interest rates by 50bps, the first increase since 2011, ending eight years of negative rates, in an attempt to release the inflationary pressures.
Meanwhile, in China, the mega-city of Chengdu extended a lockdown for most of its more than 21 million residents on Thursday, highlighting the country’s strict adherence to its zero-COVID strategy that is derailing economic recovery and clouding the demand outlook. Earlier in March 2022, Bloomberg reported that China's lockdowns will likely cost $46 billion a month, or 3.1 percent of its GDP, and the report said the impact could double if more cities tighten restrictions.
As per a Reuters report, crude throughput at Chinese refineries slumped to the lowest level in July, the lowest since March 2020, amid unplanned facility outages and lower processing rates at independent refiners due to declining refining margins.
Further, Russia’s threat to cut energy flows to countries that support a price cap on its crude. Last week, the G7 economies agreed to impose a price cap on Russian oil to hamper Russia's ability to finance its war in Ukraine.
Russian gas exports to Europe via the Nord Stream 1 pipeline have already plunged nearly 90% from a year ago. Russia last year supplied 40% of the EU’s natural gas, but now is the source of only 9%, according to media reports.
With the price cap approved, Putin said Russia would refuse to supply energy to participating nations.
On the supply side, analysts predict that if the Iran nuclear deal is resurrected, 2.5 million BPD of Iranian crude will flow into global markets, as Iran was OPEC's third-largest producer after Saudi Arabia and Iraq. It was the world's fourth-largest oil producer in 2017, trailing only the United States, Saudi Arabia, and Russia.
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