Thursday , June 8 2023

Oil deepens its fall and becomes another focal point of global turmoil


Trump, the day before yesterday, during a White House conference call with members of the armed forces Source: AFP – Credit: Mandel Nigan

Gross prices reached the lowest levels in more than a year due to the economic slowdown, the trade war and the possible excessive supply

The oil has fallen to its lowest level in more than a year yesterday and has attracted large energy companies in their decline, in a nervous climate due to the economic slowdown and ongoing talks on US trade war. and China, during the G-20 summit next week in Buenos Aires.

It fears that the slowdown in global economic growth could affect oil demand and uncertainty about the conclusions of a key meeting in December by OPEC countries that could lead to oil overdoses combined with exasperated investors and reduce prices to the seventh consecutive week.

Brent Crude, the international standard, lost 6.07% to $ 58.80 / barrel. During the session, it reached its lowest level in October 2017, to $ 58.41. Crude oil from the United States lost $ 4.21, 7.71%, to $ 50.42 per barrel, the lowest level since October 2017. Chevron and Exxon oil giants fell 3.4% 2.7 %, respectively.

"It has been a very difficult week for oil prices, which have reached new values ​​in more than a year because of concerns about oil surplus and fears of global growth," said Lukman Otunuga, an analyst at FXTM. .

But the most imminent factor is the talks scheduled between Donald Trump and Chinese President Xi Jinping next week, where he expects to address Washington's protectionist escalation with an explosion in the global council.

"Oil is declining, continuing its decline, and this seems to worry investors very much that global growth is slowing down," said Jeff Kravetz, regional investment manager at US Bank Private Wealth Management.

A decline caused largely by the trade war between the two big economic powers, as noted by Phil Flynn, an analyst at the Price Futures Group. "The market is considering an economic slowdown, it is anticipating that Chinese trade negotiations will not go well," he said.

Gross prices rose to the highest level in four years in October, to $ 85 a barrel. At that time, fears about supply reduction due to new US sanctions on Iran, a global oil giant, but long-term with the Trump government, which reversed the approach his predecessor Barack Obama has made, was called for.

Since then, prices have fallen by more than 30%, in a new round of expectations that have the sluggish barrel from top to bottom in a great deal of unstable values ​​and unpredictable predictions.

A few weeks after the sanctions enacted, which had exemptions to allow more countries to continue importing crude oil from Iran, investors became concerned in the opposite direction. He was no longer afraid of lacking, but of overburdening the raw market.

After the talks at Trump and Xi in Buenos Aires, the focus will be on the meeting of the Organization of Petroleum Exporting Countries (OPEC) in Vienna a week later. No one is sure whether the Arab monarchs and other members of the strong understanding will decide to open the tap more or to curb the flow to increase prices.

Saudi Arabia and other OPEC members have recently expressed readiness to consider production cuts during the Vienna meeting. But Washington has increasingly pressed in Saudi Arabia and the entire oil club selected so as not to reduce production and thus favor lower prices.

With the balance of the possibilities of pivoting from one source to another, many investors are still betting on a price fall even though "even if OPEC exporting countries could reduce production during the meeting," Otunuga said.

Saudi Arabia plays a decisive role in the heart of the cartel, and its attitude in Vienna remains to be seen. Trump congratulated the Riad on Wednesday because it helped lower oil prices by pumping in recent weeks and compared it with a "high tax cut" to boost economic activity.

"Gross prices are shrinking, great! As a huge tax cut for the United States and the world, enjoy! Thank you, Saudi Arabia, but let's go down!" Magnate wrote on Twitter. "We thank Saudi Arabia, but let's go even further," he wrote from his Mar-a-Lago club in Palm Beach, Florida.

Prince Mohammed Ben Salman, with a reputation as a reformist leader who broke apart after the murder of journalist Jamal Khashoggi, will head to the G20 Summit in Buenos Aires. Russian President Vladimir Putin will also be in charge of another oil power with the ability to influence prices. Putin and Trump exchanged a few words about oil when they coincided in the ceremonies at the end of the First World War in Paris.

According to Trump, Putin said he is "happy" with prices and will not commit to cut production, as some OPEC members have asked. While OPEC reported that it expects to return to production cuts, Russia has adopted a "wait and see" approach.

The reasons behind volatility

Peaks and losses of crude oil and its direct relationship with Middle East diplomacy

Why lower oil prices?

In recent months, market priority has sharply changed. When major producers, including OPEC and Russia, met in Vienna in June, the main concerns were the potential for price recovery and whether the reserves would be adequate. Trump's decision to reinstate sanctions against Iran threatened to remove a large amount of oil from the market. During the Boreal summer, Saudi Arabia and other producers who ceased production from 2017 opened the taps to reassure consumers and Trump. Maybe they were too proactive. Operators have ceased to be interested in Iran and have focused on other factors, for example, if the trumps with China and rising interest rates could affect global economic growth and oil demand. At the same time, production in the United States grew faster than expected. It also grew in Libya, even if the war continues and has stayed better than expected in Venezuela. According to analysts, large quantities of oil accumulate again in storage tanks around the world, which increases the fear of extra overlapping.

What is the impact of sanctions on Iran?

Since the 5th of this month, they have had a lower effect on Iranian production than some analysts have predicted. Buyers had to reduce their country's oil purchase before sanctions, but it seems that this has slowed down Iran's production. For example, OPEC reported that Iranian production in October fell by 4.5% over the previous month. Some information explaining why the impact was poor: the Trump government granted temporary relief to older customers in Iran, including China, India and Japan. Oil traders interpreted the generosity of the government that possible cuts in Iranian exports could be lower than expected. Exceptions to Japan and South Korea, which have ceased to buy Iranian crude, have been surprising. It could indicate that government priorities are more inclined to keep low prices for American consumers than to oppress Iran. If so, it seems that the strategy works: the gas price in the United States is $ 2.61, compared to $ 2.85 in the previous month.

What factors will the price decide?

The increasing pressure on OPEC is to support prices when the organization meets with Russia and other producers in Vienna in December. Experts expect to announce production cuts of about one million barrels a day, about 1% of world reserves. There is no doubt that the Saudis can make reductions of this magnitude. After all, they raised production by 700,000 barrels per day, compared to the average production in 2017. Saudi Arabia may have problems in persuading producers like Russia and Iraq to make reductions. Perhaps the Saudis have to travel on a complicated road between the Trump government's pressure to reduce their prices and the needs of their economy to have higher profits. There is a good chance that Russia and Iraq will decide that accepting reductions will benefit their interests. Several months ago, it appeared that the Saudis have targeted the market to more comfortable price levels for their own goals by coordinating production cuts with Russia and other countries. Now, the Saudis are again in an awkward position to be pressed by US shale producers.

A descent that does not stop

Awaiting the OPEC meeting on December 6, the main crude indices continued to fall due to fear of oversize

Brent, which is mainly extracted from the North Sea, fell yesterday by more than 4%, although the producers analyzed to reduce production

$ 58.80 per barrel

The price collapsed because of a supernatural fear

30% decrease in one month

In October, it reached its highest level in 2014 when it was thought that supply would fall

WTI (West Texas Intermediate), which is extracted in Texas and Oklahoma, continued yesterday the fall process that was recorded for seven weeks

$ 50.42 per barrel

It was the value that arrived yesterday for deliveries in January, a loss of 6.96% in a day

Decrease of 34% in a month

On October 3, Texas WTI reached its peak in a few years

AFP, AP and Reuters agencies

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