High summer demand for fuel as well as limited supplies due to sanctions for Russia are shaping oil prices at the moment.
Brent crude futures rose 0.5% to $114 per barrel. August WTI crude oil contracts also rose $1.5 to $109.52.
Is it possible to stabilize the price of the main commodity, or will the ongoing conflict and situation in China continue to fuel the high price?
Historically oil prices have been linked to macroeconomic events such as the 1973 OPEC crisis and the 2007-2008 crisis. Seasonal fluctuations in demand also affect the price. Demand fell substantially during the pandemic and then skyrocketed with the invasion of Ukraine, reaching all-time highs in 2008. The price rose by 61%, reaching more than $120 a barrel.
The main price triggers :
- The Russian invasion of Ukraine has had a devastating effect on all assets, but it has been most noticeable in the energy sector, as Russia is one of the world’s largest oil producers and the largest oil transporter. First the US ban on oil, then the EU refusal to supply 90 percent of supplies by year end has put pressure on commodity prices amid supply shortages. Prices may remain high for a long time, as there is probably less and less hope for a quick resolution of the conflict.
- OPEC and Western countries are confronting each other with demands to increase the rate of oil supply as the rate was reduced in 2020 by 10 million bpd due to low demand.OPEC has not yet managed to increase the rate to the previous levels.
- Countries that have been under sanctions have had ample opportunity . Countries like Venezuela, Iran and probably the UAE will enter the Western market in a big way.
- There is an increase in demand from China. China has seen a drop in oil demand in the last few years, due to a desire for clean energy, but more on the back of lockdowns and slowdowns in construction. Now that China is returning to its normal pace, demand for the main commodity will rise sharply.
What are the expectations?
EIA states that the price dynamics depend more on the Russian-Ukrainian conflict. In 2023, the price of WTI is projected at $93.24. As for Brent, the forecast for the second half of 2022 is 103 dollars per barrel. In 2025 the price of Brent may reach $61, and WTI – $59 according to the EIA forecast.
Saudi Arabia’s decision to raise oil prices next month will also push the prices up, even though OPEC will increase production by 50%.
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