WTI crude oil futures fell below USD 98 per barrel on Monday. Previously, the price had declined for two months in a row. Weakening prospects for global demand may outweigh signs of problems with increasing supply and capacity utilization, affecting the downward trend in oil prices.
Official data released over the weekend showed that factory activity in the economy of the world's largest oil importer, China, unexpectedly declined in July. The demand-lowering weakening global outlook and the COVID-19 outbreak may have contributed to this. The reduction in oil demand may in turn put downward pressure on crude prices. The downward trend may be reinforced by the fact that not only China's economy, but also that of the United States, is showing signs of weakness. Last week's data showed that the U.S. economy contracted for the second consecutive quarter.
Supply stabilization and a record in the US
Libya's oil minister told Bloomberg that the country's production has normalized at 1.2 million barrels per day after a series of earlier production disruptions. Markets now appear to be waiting for Wednesday's OPEC+ meeting, where the policy of moderately increasing oil supply is expected to be maintained in the face of capacity constraints and underinvestment in oilfields, keeping global supply low and consequently oil prices at relatively high levels.
According to the EIA, global liquid fuel consumption will increase by 2.2 million b/d in 2022 and by 2.0 million b/d in 2023. OPEC oil production, on the other hand, will increase by 2.4 million b/d, to an average of 28.7 million b/d in 2022 and further increase to 29.3 million b/d in 2023. Oil production by OPEC members averaged 26.3 million b/d in 2021.
The United States could set a record for oil production next year. According to the EIA in its report, U.S. oil production could rise to an average of 11.9 million b/d in 2022 and 12.8 million b/d in 2023, which would mark the highest annual oil production in the United States. The current record is 12.3 million b/d and was set in 2019.
In oil, hope to bring inflation under control
The situation in the oil market seems to have a significant impact on the level of inflation, and this could affect the monetary policy of central banks. If the price of oil remains in the region of USD 100 per barrel in the coming months, the chances of a faster decline in inflation, especially in the winter months, are increasing. Then, too, the so-called "base effect," i.e., high oil prices in the past, may emerge, which could flatten out percentage changes on an annual basis.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.59% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.