Oil prices fell below $70.
Photo: REUTERS.
The commodities market seems to have entered a downward phase. In the middle of the week, oil fell below the $70 level for the benchmark Brent grade. This is the lowest since the end of 2021.
The main reason is the weakening of global demand. The world’s largest oil consumers are the United States and China. Both countries have poor statistics. The world’s two largest economies are slowing down. This means that there will no longer be any further demand for oil.
At the same time, we started the year well. From $80 in January, it rose to over $90 in April, but then it started to decline. And it fell below $70. At the end of the week, oil prices still rose above this value. But it is difficult to say for how long.
Russia, of course, is not satisfied with this cost. Even in the best years, this was not such a budget-friendly price. And now we are selling our Ural variety at a discount. About $10.
For example, if Brent was worth around $80 in August, we were selling our oil for just over $70. These are official figures from the Ministry of Economic Development. Overall, the picture is not very encouraging.
There is certainly hope for the OPEC+ cartel. Since the coronavirus, it has learned to balance supply and demand on the oil market. It is true that so far we have only had to reduce production. They wanted to increase it slightly from October 1, but now they have decided to extend the current restrictions until December 1. Otherwise, the oil price would have fallen even further.
At the same time, other factors are putting pressure on oil. First, the easing of tensions in the Middle East. With Iran and Israel actively exchanging threats, an escalation of the conflict was looming on the horizon. And this could greatly affect production in the region. But right now it is quiet.
The second factor is more long-term. Europe is continuing to embrace the “green” agenda. Nuclear power plants have long been abandoned and electric cars are also being switched to. And this trend has a strict deadline: 1 January 2035. From this date, no vehicle with an internal combustion engine may be sold in the 27 EU countries. They simply will not be registered. Moreover, the ban will even apply to hybrids.
Previously, European manufacturers boasted that they could cope even faster. It is said that by 2030, conveyor lines for the production of cars with internal combustion engines will be discontinued. But now their rhetoric is no longer so confident. If you give up gasoline, you will need to produce more electricity. And there is no longer access to cheap Russian gas.
One thing is comforting. The oil market is just like the rest. It rises and then it falls. There will always be objective reasons for both. So there is hope that traders will get tired of playing short. And they will bet on the rise. And the great regulator of the commodities market, OPEC+, will undoubtedly play a role as well.
QUESTION FROM THE EDGE
What will happen to the ruble currency?
The exchange rate dependence on oil prices is no longer as strong as it once was. But it still exists. The cheaper black gold is, the weaker the ruble is. For example, since the beginning of September, the price of the Chinese yuan has risen by more than 5%, to 12.7 rubles.
