The price of a WTI barrel crossed the $100 per barrel mark in May and managed to reach up to $110 at the beginning of June, since then the price of the barrel has fallen by more than 25% to about $82 per barrel now. Oil, of course, is still at a very high point, since we even saw these prices for the last time (before the corona virus) in the summer of 2014, when we saw the price per barrel reach up to 88 dollars. The drop in price since the peak recorded in May is most likely attributed mainly to the summer months when the demand for oil is of course lower when in September the price reached up to 75 dollars.
Another motive now that clouds the price of oil, from the demand side, is the continuation of the strict corona policy of the Chinese government. The Chinese policy leads to the fact that the country’s output is significantly lower than it should be – factories are closed, people go into isolation and the economy simply cannot function normally. The matter, of course, leads to a decrease in the country’s demand for oil, since oil is simply not as necessary as it was during the normal operation of the economy. When a large and significant producing country like China – the largest oil importer in the world – lowers its demand for oil, it is clear that the price will be affected and indeed – not on purpose (probably), in fact it keeps the price of oil from soaring higher.
In China, there are reports of about 23,000 new infections per day, the highest level since April and the number is approaching new records. Now, when you take into account the negative data and the extreme approach of the administration, it is clear that we will not see an opening of the economy soon and that the situation is not going to improve soon. Just about ten days ago, the expectation of an easing in the Chinese policy brought the price per barrel to reach the price of 93 dollars. In addition, it should be noted that China is facing a severe real estate crisis that resulted from the slowdown in the economy, and all of this led to the fact that China’s growth data, which is often suspected of “cooking the numbers”, missed analysts’ forecasts. Ed Moya, an analyst from the OANDA platform said Because “oil prices are ‘punished’ when concerns about the demand for crude oil do not subside.”
Another effect on the price is The slowdown in the US economy which also lowers the demand for oil. Although the inflation in the USA according to the month of October was lower than expected – 7.7% on an annual basis, but the prices still do not stop rising and many predict that the largest economy in the world will enter a recession in 2023. The meaning of a recession is of course a decrease in consumption and a slowdown in the economy, and the matter can be seen already in days these – Economic activity in the Mid-Atlantic region fell this month to the lowest level since 2011. The analyst Moya added: “The two largest economies in the world are having a hard time when there is China, which is fighting Corona, and the United States, which is seeing a significant decrease in its production activity.”
On the other hand, the low demand of the Chinese and the Americans comes with two main incentives for price increases, but it seems that they are less evident now. First there is the war in Ukraine, which was a major driver of the high prices we saw in the middle of the year. Secondly, there are the countries of the OPEC organization, which announced a reduction in the amount of oil they will produce in an attempt to keep oil prices high, which sent the West and the Americans into a panic.
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It is still not clear where the price of oil will go in the near future, or rather – who will have more influence, the demand or the supply. The situation in the USA and China is not expected to improve, but as the weather gets colder, the demand for heating and oil increases here as well – the situation is obviously not going to improve soon. From their war in Ukraine and without any solution, be it an agreement with the OPEC countries or an end to the war, the Europeans are expected to have a not easy winter at all. Meanwhile, lower demand from China and the US appears to be the bigger factor andThe price of a barrel of Brent drops back to $90 a barrel, down more than 3%.
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