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The twilight of oil: the factors that push its price down in 2023

Date: March 28, 2024 Time: 20:20:45

Within the range of assets that have reacted adversely in the markets, one of the most prominent is oil. A barrel of Brent crude has gone from trading above 124 dollars to finding above 73 dollars. The same happens with the WTI, a reference in the United States, how many historical maximums are already quite far away: from the 120 dollars of the month of June of last year, it has found below 70 dollars.

The decline in the price of ‘black gold’ is directly related to the pairing of supply and demand in international markets, but also to the prospects that could be found in the current scheme. The latest falls are due to two main variables: the banking crisis produced by Silicon Valley Bank in the United States and by Credit Suisse in Europe lead one to think that a global recession could occur; and the claims of the Biden Administration to extract oil from Alaska, one of the richest and least explored territories in hydrocarbons.

Regarding the first variable, recessions are generally accompanied by a sharp drop in demand for goods and services. In the case of commodity markets, a slowdown in the economy is most common. As reported by CNBC this week through two OPEC+ sources, “banking uncertainty fueled fears of another financial collapse in the style of the 2008 crisis.”

A recent report by Goldman Sachs ensures that the banking crisis may affect more “supply than demand” for oil. In other words, contrary to what usually happens, the readjustment would come more from the containment of the producing countries than from the significant cut in world consumption. At least that’s how the US investment bank’s commodities team sees it.

So much so that these analysts reduced their estimates on the main merchandise. “This is due to banking tensions, fears of recession and the exodus of investment flows,” they comment. They currently expect Brent prices, the benchmark in Europe, to reach $94 per barrel in the next 12 months and $97 per barrel in the second half of 2024, compared to previous forecasts of $100 per barrel for both periods.

It should be remembered that a year ago, Goldman Sachs’ estimate was that oil would climb above $150 at some point. But now it seems that the backdrop has changed. “Our adjustment also reflects somewhat weaker fundamentals, higher-than-expected short-term inventory and knowledge, moderately lower demand, and modestly higher non-OPEC supply,” they note.

Likewise, a recent report from the Bank of America analysis team highlights the upcoming OPEC+ meeting as a key date to anticipate oil movements. A meeting in which there would be a lot of focus on how consumption evolves in China which, it must be remembered, has come out of its restrictive policies caused by Covid.

“We see high-frequency demand data picking up in China, which supports our view that current ‘super margins’ will remain ‘super resilient’ for months to come, while the 500 kb/d export cut of Russia, in our opinion, will exclusively affect its exports of distilled media at the next OPEC+ meeting on April 3, ”says the entity.

“With the fall in Brent in recent weeks pushing crude prices below most OPEC+ fiscal breakeven levels, I think the upside risks of OPEC+ joining in cutting Russia’s exports outweigh more than the downside risks”, they highlight.

The Willow Project and Russia

On the other hand, there is the Russia factor. In this regard, Bank of America believes that the upward revisions to the maintenance schedules of Russian oil refineries point “to the country’s difficulties in substituting EU buyers for most of its diesel exports.” . “As we previously reported (Moscow cuts, cracks expected to heal), Russia’s announcement of a 500kb/d production cut is not being implemented so far and is in our view a direct response to the oil embargo. refined products applied by the European Union on February 5”, he adds.

The second bearish factor for black gold is found in the approval of the Biden Administration’s project to exploit oil and gas in Alaska. It is a program of about 8,000 million dollars that the oil company will lead “The Willow project will generate more oil supply on the international stage and that is why the raw material is discounting it with price cuts,” says Atlantic Capital on the latest movements that have been reflected in the barrels of Brent and WTI.

* 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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