Crude oil prices could fall to $90 per barrel if the economies of the world's two biggest consumers continue struggling with growth, Bharat Petroleum's chairman told the Economic Times.
"Prices can touch $90 in two months if the US continues with inflation and low growth and China is unable to find fixes for its economic troubles. Economic woes in these two countries can affect demand," Arun Kumar said.
At the same time, however, Kumar suggested that oil demand could find support from record-high natural gas prices, which are prompting industrial consumers to switch to oil-fired generation.
Indeed, Germany's city of Munich last week restarted oil-burning units at two power plants in a bid to reduce its gas consumption in line with the EC's plan for a 15-percent cut in gas consumption across the European Union.
As of August 1, natural gas in Europe traded at above $199 per MWh, which was lower than the peak reached in March this year, but still prohibitively expensive for many gas consumers.
Oil prices, meanwhile, have been subdued lately by economic worries as various analysts and politicians debate whether the U.S. slipped into a recession or the definition of a recession needs a revision. Nobel laureate Paul Krugman suggested the word "recession" was irrelevant.
It appears to still be relevant for oil traders, however. Worry about the U.S. and China as well was the main reason for the latest decline in oil prices, along with the anticipation of this week's OPEC+ meeting.
The extended cartel met today in Vienna to discuss production for September. The group decided to raise production targets for September slightly, by 100,000 bpd. With a compliance rate of more than 300%, OPEC+ is unlikely to reach that target.
Meanwhile, "Russia's production is unlikely to drop anytime soon and so the overall global oil supply will remain unaffected in the coming months," Bharat Petroleum's chairman also noted.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More
Comments
Panic buying of the Yen is hardly great news for the commodity complex is obviously an understatement.
It's also really bad news for the Japanese economy needs noting as well.
$duk Duke Power still running a massive coal based electrical generation Fleet. Good luck competing with Nucor Steel although not for lack of trying from the entire World both foreign and domestic at the moment.
*MAYBE* Ford Motor Company can be a demand driver but housing sure isn't going to be after the tax and spend drunkards called Trump Biden. Oddly enough General Electric looking good here, tho.
So is $mmm 3M
First time in mere decades for those two worth saying that.
The global oil market is expected to shrug off concerns about recession and demand destruction because it is in its most bullish and tightest state with robust global oil demand and a fast-shrinking global spare oil production capacity including OPEC+’s.
Against this background, not even the threat of harsh recession and rampant inflation could arrest the surge of both oil demand and prices.
In normal circumstances, a recession leads to a shrinking global economy and demand destruction. But we are in unusual circumstances. With a tightening market, shortages and a shrinking production capacity, there isn’t much for demand destruction to destroy. So we end up with a unique form of recession with rising oil demand and prices and a contracting global economy.
OPEC+ has hardly any spare capacity to influence prices particularly that both Saudi Arabia and UAE are producing currently at maximum. That is why OPEC+ will struggle to even lift its production by 100,000 barrels a day (b/d).
The fact that Russia is able to sell every single barrel of crude and petroleum products it exports despite the sanctions, speaks volumes about the robustness of the global oil market aided handsomely by a shrinking global production capacity.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert