Oil prices may be heading for their first month of declines since November as fears intensify about the global economy swinging into a recession, in large part because of high oil prices.
As OPEC+ meets today to discuss production policy, with no surprises expected from the extended cartel, both Brent crude and West Texas Intermediate have been trending down over the past four weeks.
The decline can be attributed to central banks rushing to tighten monetary policy in the face of persistent inflation in a bid to put a lid on it. However, there is a risk in this fast tightening, and this risk is of a full-blown recession, which would likely affect oil demand, and, as a result, prices.
Even so, the upside potential of crude oil prices remains substantial as it becomes clear that the world’s spare capacity may not be as significant as previously believed. This week, oil went on a three-day rise as it became clear that Saudi Arabia and the UAE may be close to their maximum possible output rates.
Reuters broke the news, citing a conversation between French President Emmanuel Macron and Joe Biden. Macron told Biden—while Reuters was recording nearby—that in a chat with the ruler of the United Arab Emirates, he had told Macron the UAE was pumping near its maximum and that the Saudis could only add about 150,000 bpd.
UAE oil minister Suhail al Mazrouei later sought to clarify that Sheikh Mohammed bin Zayed al-Nahyan was referring to the maximum for the UAE’s baseline production rate, but the news worried the market because Saudi Arabia is believed to have spare capacity of some 2 million barrels daily.
Meanwhile, other OPEC members are still struggling to even reach their self-assigned production quotas, with outages in Libya and Ecuador tightening supply from the cartel further recently.
By Irina Slav for Oilprice.com
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