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Oil at 90 dollars: the most important obstacle for the European recovery

Date: April 22, 2024 Time: 06:31:53

Europe appears to have uncorked the champagne by avoiding economic downturn over the winter. A ‘match ball’ that has been celebrated by multiple economic agents, but that seems to avoid future problems that could appear. For now, the consensus on a recession in the old days has disappeared, and among the reasons cited are falling energy prices, China’s faster-than-expected reopening, private sector resilience, and modest change. of global financial conditions.

“Given these factors, the global economy may post trend growth in the early part of the year and the fully anticipated recession in the Western world may be delayed until the end of the year. We will keep a close eye on oil prices as a key variable and catalyst for any possible recession, as the price of Brent crude approaches $90 we are starting to reach levels that could last activity, push the price up and down. activate central banks”, expose the experts from Muzinich & Co.

Experts maintain that it is of vital importance to understand how the price of oil is formed, and how to eliminate supply and demand, factors that intervene in setting the price of a Brent barrel, and which in turn contribute to a possible increase in prices. CPI data again. On the supply side, two big components to watch are US and Russian shale gas. US shale gas may have a negative effect on the price. The reason is that as oil prices rise, the more expensive shale producers are encouraged to increase production.

Analysts expect shale production to increase this year, but it will be hard to beat forecasts. This is due to unemployment in the oil and gas sector, which remains at record low levels, driving wages up along with higher financing costs in the capital markets.

“Combining this increase in costs with the limited spare capacity of hydraulic fracturing equipment and declining production rates, a surprise to a significant increase in shale supply seems unlikely,” they say from Muzinich.

Russian oil supplies and a measure coming into force are expected to ease restrictions. This has not been the case until now, since Russia is interested in maximizing production to finance its war machine. “However, the embargo on petroleum products beginning in February 2023 is expected to have a greater impact on supply than the crude oil restrictions that began last year,” they deepen.

The demand factor

In the oil equation, the demand side has been one of the main drivers of rising prices since last December, as investors adjusted their expectations for global oil demand. This has been fueled by the reversal of China’s zero-Covid policy, a faster-than-expected recovery in activity, renewed international travel, and a recession that, so far, has not occurred in Western countries. . “This could mean an increase in demand of 1 million barrels per day (mb/d) in 2023, which would be equivalent to an increase in prices of 16,000 million dollars,” they analyze from Muzinich.

The final most important component for setting oil prices is OPEC+, which controls approximately 50% of world supply and could define its objective as maintaining stable inventory levels. The last measure taken by OPEC+ in October 2022 was to cut supply by 2 million barrels per day.

Oil prices had fallen to around $80 a barrel in the run-up to the meeting. In addition, reserves in the US Strategic Petroleum Reserve are at levels not seen in decades. The current Administration of the United States has announced its intention to repurchase oil reserves of the West Texas Intermediate (WTI) type at a price between 67 and 72 dollars per barrel. “Putting oil reserve levels back to the average of the last ten years would be equivalent to buying some 280 million barrels,” they say.

Oil prices have adjusted to developments in global economic growth, but a further rise in prices from now on could work against the global economy. The fall in oil prices could still occur in the second half of 2023 if economic growth disappoints, but OPEC+ and the United States have already set clear markers. In the best interest of investors, oil would remain in a range of between $70 and $90 per barrel in 2023.

* This website provides news content gathered from various internet sources. It is crucial to understand that we are not responsible for the accuracy, completeness, or reliability of the information presented Read More

Puck Henry
Puck Henry
Puck Henry is an editor for ePrimefeed covering all types of news.

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