Oil prices have fallen massively this week, returning below $100 per barrel as investors feared an imminent recession. The rising rate of inflation across the globe, attaining a forty-year high in the US sector in June, had pushed investors to cut their risk ahead of a feared possible recession.
This has increased the selling pressure on oil since the beginning of August. WTI has fallen from its previous high record created at $100.82 in July to a new low at $91.87 in August. The price is currently ranging at $93.28 during the Asian session today.
Brent oil has fallen from its high record at $106.03 in July to a new low at $98.10 in August. The price is seen ranging at $99.58 during the Asian session today.
The OPEC Joint Ministerial Monitoring Committee meeting is an important economic event influencing oil prices today. Investors are predicting a further increase in the oil supply by this body to withstand the limitations of Russian oil blockades. Increasing the oil supply at this point will affect oil prices negatively, given the loss of interest in buying more amongst investors.
Aside from the OPEC JMMC meeting to be held today, the crude oil inventories will be released today also. The crude oil inventory measures the change in the number of barrels of crude oil held for use by commercial firms during the past weeks. This is usually seen in the company’s inventory. The crude oil inventory is often considered the best way of measuring the supply and demand level for oil in the market today. An increase in the total number of oil barrels held by commercial firms is a testimony that there is still high oil demand. A massive reduction in its level will justify the current position that investors are selling off due to fears of a possible recession. This will further discount crude oil prices, as some economists have projected. The previous record of the oil inventory was given at -4.5M. An increase in this figure is suitable for oil prices to rise again, while a reduction will support the current downward trend.
Escalating tension between US-China over the threats given to the US House Speaker- Nancy Pelosi on her personal visit to Taiwan yesterday; is currently giving investors more reason to be reserved in their oil purchase. Many analysts fear a possible US embargo on China that will affect oil demand.
How will the OPEC JMMC Meetings today impact oil prices?
Historically, the OPEC Joint Ministerial Monitoring Committee (JMMC) meeting is known to affect the oil prices based on the decision reached during the conference: to either increase or reduce the oil supply. The OPEC JMMC meeting is usually attended by representatives from the thirteen different OPEC member countries and 11 other non-members but oil-rich countries. During this meeting, the committee will discuss broad issues on the global demand and supply of oil. Here, they are to agree on how much oil the body will produce within the next quarter and establish an average oil price target.
The OPEC JMMC today will no doubt determine the next direction for oil for the rest of the month. Given that investors are selling off their significant oil holdings as a precautionary measure against the forecasted recession, a further increase in the amount of oil supply by the committee today will discount so much on oil prices.
Conclusion
Oil prices are expected to remain lower in the second half of 2022 until investors’ confidence is restored that we are not headed into a global recession. Investors must see clear evidence that the US economy is strong enough to withstand a recession. Aside from this, oil prices may be expected to remain lower for the moment and possibly below $100 per barrel or just slightly above it.
The only positive support for oil to rise again will be if OPEC decides to limit the oil supply during their meeting today. This will balance the supply and demand level again, paving the way for a further price increase should the demand exceed supply.
