Oil fluctuates with war and monetary tightening, but trend is up

Oil fluctuates with war and monetary tightening, but trend is up
Oil fluctuates with war and monetary tightening, but trend is up

Oil prices have been suffering in recent days with the high volatility of the markets, given the new reality of high global interest rates, which threatens the demand for the commodity, due to the possible global economic slowdown.

In addition, a new source of pressure happened this week with the increase in tensions between Russia and the countries that support Ukraine, in its war with the neighboring country, with possible impacts on the supply of the product, which led to the price of oil. to appreciate in the last few days.

For experts heard by the InfoMoneydespite the fact that the price of oil has moved away from the highs of the beginning of the war – which has been dragging on for almost 7 months and has led the price of the commodity to be negotiated, for most of this time, above US$ 100 -, the trend , for the short and medium term, remains bullish.

“The drop in prices in recent months is related to the rebalancing of supply and demand for 2022. Russia managed to redirect its exports to other countries and this allowed the market to remain supplied”, explains Edmar Almeida, professor at the Energy Institute at PUC -River.

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Russia, which suffered embargoes on its goods after starting a war in Ukraine, was, in 2021, the third largest oil producer in the world, extracting approximately 10.9 million barrels of oil a day.

With much of the West cutting the import of “black gold” made in Russia (Europe, for example, drops by 35%), the price soared, until Russian production was relocated – India, for example, began to buy six times as many barrels in the country ruled by Vladimir Putin.

Despite this, according to recent data, Russia continues to produce only 80% of the total volume registered before the war, still facing difficulties in the redistribution of its barrels.

For 2023, the supply of Russian oil should have better flow again, as the market “adjusts to sanctions”.

Higher prices despite monetary tightening

The PUC-Rio specialist, however, believes that what is expected is that the price of the commodity will advance again, despite the reorganization of supply and monetary tightening.

“There is growing concern about the balance in 2023. First, because even with the rise in interest rates, there is a consensus among analysts that demand will grow. The growth in supply in the US, however, is estimated at less than one million barrels per day,” says Almeida. “There is a high risk of market imbalance.”

He recalls that, despite the monetary tightening in developed western countries, the International Monetary Fund’s perspective is that the world economy will grow 2.9% next year, which should put pressure on demand. “For now, everything is fine, but we may have a 2023 with supply problems and high prices”, he concludes.

Gabriel Floriano, strategist at Levante Corp., has a similar opinion. “The price scenario for oil has been constructive since before the war, due to a series of accumulating imbalances”, highlights the expert.

“There has been low investment in the sector since 2015, 2016, which ended up restricting supply in a chronic way. New investment cycles take time to mature and the ESG agenda ends up discouraging, at a certain point, agents from making new contributions to the sector”.

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Lower oil supply

For the Levante strategist, there is an impossibility for OPEC members, for example, to increase their production. Saudi Arabia and the United Arab Emirates, which have the capacity to do so, are not interested in doing so.

“We are constructive in the oil price scenario. Even in the event of a higher economic downturn, we think the market remains asymmetrical. There was a reduction in oil consumption only on four occasions – 73, 78, 2008 and now during the pandemic, in 2020”, explains Floriano.

He adds that, in addition to supply restrictions, it is likely that, in the short term, major powers will rebuild their strategic reserves of the commodity, which have been spent recently due to the hardening of geopolitical problems.

“A good drop in inventories, and also in prices, was due to the sale of reserves in the period of greater geopolitical tension. With the current scenario, it is not pleasant for the US, for example, to keep its reserves low,” he recalls.

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gas crisis

Finally, Eric Gil Dantas, economist at the Social Observatory of Petroleum, argues that, despite the possible economic crisis that could put a ceiling on demand, there is also the factor of the natural gas crisis in Europe – which should increase the search for fuels from the oil in the region, as they serve as an alternative.

This, along with worsening geopolitical problems, is a catalyst for “black gold” to rise.

“The effect of a possible crisis, caused by higher interest rates, could lead to an impact on the price of a barrel, but for me, for now, it makes little sense to think that we will have lower commodity prices. It’s a supply problem”, he argues.

Higher oil prices

Credit Suisse, in a report released this week, raised its forecasts for the price of a barrel of Brent in 2024 from US$70 to US$75 and, in 2025, from US$65 to US$70. The bank, for 2023, maintained its forecast of US$ 85 per barrel, conservative compared to the market consensus, which is US$ 96.25.

“In the short term, we believe that weakening economic activity is likely to impede the post-Covid recovery in oil demand, but prices may receive upward support depending on OPEC+ market management.”

Recently, officials linked to OPEC have threatened to cut production in the event of a drop in prices – such as the secretary general of the institution, Haitham Al Ghais -, which would appear as another trigger for a rise.

“The supply scenario is not catastrophic. Russia is managing to sell its oil to other countries, mainly to Asians. But everything is very unstable and the worsening crisis in Ukraine puts a limit on price reduction”, adds Dantas.

The article is in Portuguese

Tags: Oil fluctuates war monetary tightening trend

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