The price of crude oil has been quite volatile recently. Brent crude oil once soared to $102.95 per barrel at the end of August and then fell back. From September 2 to September 5, the price of WTI crude oil rebounded, rising from $86.56/barrel to $88.60/barrel, with the price of Brent crude oil rising from $92.66/barrel to $95.13/barrel.
Subsequently, OPEC+ decided to reduce the total supply of crude oil to the global economy by 100,000 barrels per day. The production cut indicated that due to the decline in oil prices amid concerns about a recession, OPEC+ chose to cut production slightly to boost oil prices. In addition, we are about to get the European Central Bank and the Federal Reserve’s interest rate decisions later this month. If both central banks continue raising interest rates significantly, then oil prices may remain under pressure as worries about a global economic slowdown increase. Market liquidity may be adversely affected, further applying pressure on oil prices.
Since the volatility of crude oil prices is primarily affected by geopolitics and news events, the price of natural gas soared by nearly 30% after Russia said that the first line of the Nord Stream natural gas pipeline would remain closed. News of “supply cut” will continue to push up energy prices in Europe and are a positive for oil prices. However, the downward factors pushing oil prices lower still dominate the market, especially since Iran may resume oil exports. However, at present, the progress of the Iranian nuclear negotiations is slow, the two sides have different positions, and it is still unknown whether a final agreement can be reached.
There is talk about the need for restrictive measures to remain in place for “a period of time”, as evidenced by Powell’s remarks. The comments have also dispelled speculation in the market about slowing rate hikes, with dollar-denominated commodities suffering as the US dollar rallies. This trend may continue over the short term. This week, the market is mainly focused on the speech by Federal Reserve Chairman Jerome Powell and the upcoming Fed Beige Book reflecting the US economic situation. For crude oil investors, it is necessary to time a strategic point for the Federal Reserve to slow down interest rate hikes to fuel a positive oil price recovery.
Even if oil prices fall, it is expected that the downside will be limited, but in the medium and long term, investors need to pay attention to the possibility of a price breakdown. From a supply perspective, even if the Iran nuclear deal is signed, the increase in Iran’s oil production and exports will not make up for the gap created by Russia’s supply cut and the declining US oil inventory. Winter’s peak energy consumption season is fast approaching, and crude oil and natural gas supplies are still tight. Market worries about an energy supply crisis may also support oil prices. In addition, OPEC does not rule out another production cut to boost oil prices in the future as they deal with concerns about slowing global demand. Investors should pay attention to the OPEC+ meeting scheduled for October 5.
Therefore, it is expected that oil prices will continue to fluctuate in the short term, and downward pressure will prevail. However, the short-term forecast will not be too large unless the excess supply of crude oil is confirmed at the end of this year. At present, there are still significant uncertainties on the demand side. The restraint on consumer demand from interest rate hikes is expected to persist. It is still unclear how much the economies of various countries may decline due to the rate hikes, which will determine the direction of oil prices in the second half of the year. The economic performance of the world’s leading economies remains poor, which is a drag on oil prices.
