Will it be a fairly quiet few weeks for crude oil prices? Analysts say it could, at least until a clearer picture of the outlook for the global economy and the resulting fuel demand projections emerges.
Oil prices have been falling for more than a month now, with West Texas Intermediate (WTI) quality falling from over $120 a barrel to around $95 a barrel more recently.
“Oil prices have recently traded at a five-month low – reflecting concerns over a slowing global economy, high inflation issues in major economies,” according to David Jones, chief market strategist at Capital. .com.
“From the highs following the invasion of Ukraine, oil has struggled to find much direction and has broadly been stuck in a sideways range for the past few months. At the moment, it seems hard to see that changing – and even harder to think of a reason why oil would hit the March highs.
“Perhaps the best hope is that oil continues to trade within this range,” Jones said. He also added that traders shouldn’t be “too surprised” if by this time next month, WTI and global benchmark Brent are trading at similar prices to current levels.
Crude oil futures rebounded in early trading in Asia on July 22 after losses in two straight sessions sparked “bargain-seeking buying”, analysts at the trading firm said. Singapore-based energy intelligence Vanda Insights.
U.S. crude futures climbed 0.74% to $96.98 a barrel, while Brent oil rose 0.92% to $104.79 a barrel.
“Once again, there was no major news on the fundamentals front in oil markets on Thursday, but crude futures saw a strong sell-off from the day on. European trading amid growing pessimism about global fuel demand as global economies battle the twin pressures of inflation and monetary tightening,” the company wrote in a July 22 note.
Weakening currencies stifle demand
A broad appreciation of the U.S. dollar against weaker Asian currencies is dispelling hopes of a recovery in petrochemical demand in Asia as imports into the region become more expensive, global commodity intelligence provider ICIS warned.
A “rising (US) dollar effectively reduces liquidity because most commodities are denominated in (US) dollars,” New Normal Consulting President Paul Hodges told ICIS on Friday.
“So when the (US) dollar goes up, commodities tend to go down, which has happened to a lot of them since the start of the New Year rally,” he added.
Lagging recovery for the main rough buyer
China is the largest importer of crude oil. But the world’s second-largest economy is “still limping,” said Julian Evans-Pritchard, senior China economist at Capital Economics.
“Our China Activity Proxy (CAP) suggests that the economic blow from the lockdowns largely reversed in June,” Pritchard told clients Thursday. “But the number of (coronavirus) infections is rising again. And even if another large-scale virus wave is averted, problems in the housing sector and headwinds to exports will limit further economic gains. »
The price of Brent crude oil plunged around $10 a barrel on July 5, the third biggest one-day change in absolute terms since the price contract was launched in 1988, driven by panic selling, following fears of an impending global economic recession.
