Slowing economies and interest rate hikes are set to keep investors and traders off risk assets such as crude oil, which could mean that oil prices may not exceed $100 per barrel again this year, according to one of the world's largest commodities traders, Trafigura.
"Given the macro headwinds, I think generally prices will struggle ... despite imminent sanctions," Saad Rahim, Chief Economist for Trafigura, told Reuters on the sidelines of APPEC petroleum conference in Singapore.
Oil prices have recently slumped to $85 a barrel Brent, a level last seen in January this year before the Russian invasion of Ukraine. In the spring, oil hit multi-year highs of over $130 a barrel.
An aversion to risk assets amid rising interest rates, mounting evidence of slowing economies, and further aggressive rate hikes that could dampen economic growth-and possibly oil demand growth-have been weighing on the oil market during the third quarter. Snap lockdowns in China due to the "zero Covid" policy of the world's largest crude oil importer have also dragged prices down as the market fears a lower Chinese fuel demand alongside slower economic growth amid an ongoing real state crisis.
The EU embargo on Russian crude oil and products, effective from December 2022 and February 2023, respectively, is set to increase already high market volatility when more than 2 million barrels per day (bpd) of Russian crude and fuels will have to find new home. The proposed price cap on Russian oil to keep Russia's exports flowing is also a huge unknown on the market in the short term.
"So far the market has been more redirection than reduction, but I think it is unclear from here," Trafigura's Rahim told Reuters.
Next year, oil prices could rebound to above $100 per barrel if China lifts Covid-related mobility restrictions and the Fed slows or pauses rate hikes to try to boost growth, the economist told Reuters.
Despite the current sub-$90 oil, OPEC+ hasn't responded yet, because they are likely looking at the overall market picture, Rahim said, adding that "actually demand today is still relatively holding up."
By Tsvetana Paraskova for Oilprice.com
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Comments
Neither global oil demand nor prices will be affected by the approaching recession because of the tightness of the global oil market, the robustness of oil demand and the fast-shrinking global spare oil production including OPEC+’s. global oil market
It will be a unique form of recession never seen before where there will be a contraction of the economy but with oil prices continuing to surge and with no demand destruction since there is nothing to destroy as a result of tightness of the market.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert