Oil prices fell during the past 30 days to below $ 100 a barrel, following an unprecedented rise since 2008 during the past months, which raised questions regarding the possibility of markets witnessing other significant declines, which means easing the burdens on consumers around the world who suffered during the last period.
Analysts say that oil prices are controlled by several factors at the present time, noting that the recent decline does not necessarily mean that the coming period will witness declines of the same size that the world witnessed during the closing period.
Amer Al-Shobaki, an economic researcher specializing in energy affairs, told Al-Hurra website that there are many factors affecting oil prices currently, including speculation in the oil market and lack of supplies in the markets, contrary to what some say that there is a surplus.
Al-Shobaki explained that the fears of recession and the weakness of the global economy were behind the drop in oil prices by 20% during the past 30 days, to reach below $100 per barrel.
It also points to the slowdown in economic growth in China, which is the second largest oil consumer in the world following the United States, which is perhaps the most severe since the pandemic began in the first quarter of 2020.
The price of West Texas Intermediate crude, on the fifth of July, reached its lowest level at $ 97.43, and Brent crude also fell by more than 10 percent, to record $ 101.10 a barrel, before settling at $102.77 at the close.
On July 14, oil prices fell by more than 5%, reaching levels not recorded since before the start of the war on Ukraine, driven by the uncertainty regarding raising interest rates, along with weak economic data for countries, which increased fears of a recession.
The price of a barrel of Brent, for September delivery, declined by 3.67 percent to $95.93, while the price of a barrel of West Texas Intermediate, for August delivery, fell by 4.40 percent to $92.04.
Thus, oil prices returned to their levels recorded before the invasion of Ukraine, when the price of a barrel of Brent ranged between 95 and 99 dollars, and the price of a barrel of West Texas oil between 90 and 94 dollars.
Despite this decline, prices are still up regarding 22 percent over the year.
Spie analyst Stephen Innes confirmed to AFP that the publication of the US inflation index for June, which reached 9.1 percent, “has enhanced the possibility of the Federal Reserve significantly raising interest rates to slow the US economy.”
An analyst at PVM Energy, Tamas Varga, said that raising interest rates once more “should lead to a contraction in the economy and a gradual slowdown in growth, which will have an inevitable impact on oil demand.”
The drop in prices has reflected positively on gasoline prices at US gas stations, following prices reached an average of more than $5 per gallon, last month.
Patrick de Haan, oil analyst at GasBuddy, said, For USA TODAY Gasoline prices may continue to fall in the coming weeks, but he said global price determinants may push prices up once more.
He added, “If we slip into recession, it might lead to lower prices. If the data indicates no recession, that might lead to higher prices.”
The rise in prices was linked in the last period to the sanctions imposed by Western countries on the Russian oil sector, in response to its invasion of Ukraine. Brent crude reached $123.58 a barrel on June 8, and West Texas Intermediate crude reached $122.11.
But inflation indicators in the United States have reached their highest level in 40 years, which prompted the Federal Reserve to raise interest rates by three quarters of a percentage point to curb price grouping, but this measure also leads to the emergence of fears regarding recession, according to an analysis of the Network. “CNN”.
After the average price of a gallon of gasoline in the United States hit $5 for the first time in June, it has fallen slightly since then, but the average price per gallon is still regarding 50 percent more expensive than this time last year, according to the report. Forbes.
This average is still well above the $2.55 per gallon average in January 2020, before the pandemic was officially declared.
Despite the recent decline in oil prices by 20 percent, gasoline prices have fallen only 8 percent, according to US President Joe Biden.
Al-Shobaki says that Biden was referring “clearly” to the problem of the shortage of refined derivatives due to the lack of investments in refineries, which led to the shortage of refined materials, which became insufficient to meet global demand, and their “historically” high prices. (It is worth noting that crude oil must be refined to be usable in gas stations).
USA Today notes the cost of refining in the United States has increased, which has reached regarding 26 percent of the price per gallon.
But despite the drop in oil prices, it may be a temporary situation, according to analysts.
“I don’t expect a significant drop in US gasoline prices anytime soon,” says David Rondell, partner at consultancy Arabia Analytica and former head of the US mission in Saudi Arabia. “I think the price will be around $5 a gallon for a long time.”
“Oil prices are complex,” Rundel said. “There are many factors that determine them. There are many unexpected things that can happen.”
Forbes says the market is dwindling due to the Western embargo on Russian oil.
Before the invasion of Ukraine in February, Russia contributed one in 10 barrels of oil to the global market, according to the New York Times.
This represented a challenge for oil producing companies to make up for this shortfall. “OPEC Plus” pledged to increase summer production, but its production in June fell due to production disruptions in Nigeria and Libya.
Al-Shobaki says that there is a shortage in the ability of “OPEC” to achieve its production quotas by regarding 2.5 million barrels, while there is global demand close to demand before the Covid pandemic, and therefore the markets are still thirsty for oil.
He says that this deficit comes in part because of the limitation of production in “OPEC Plus”, and because of the lack of investments that lasted for years in the oil and gas sector, even before the pandemic.
There are also production disruptions elsewhere, according to Forbes, and the Norwegian oil workers’ strike might cut up to 8 percent of the country’s production, reducing global supply.
And US sales in the global oil market are not enough to bring prices down in the long run, according to independent research firm Rystad Energy.
US President Joe Biden had gone to Saudi Arabia with several goals, including persuading the Gulf partners to pump more oil into the markets, but there is a decrease in the production of “OPEC”, with its countries working at their maximum capacity, and it is not clear how much quantity The additional items that the Kingdom can bring to the market immediately.
The Saudi Foreign Minister, Faisal bin Farhan, had stated that “the Kingdom is increasing its capacity to 13 million barrels and it cannot exceed that.”
Washington hopes that “OPEC Plus”, which includes Russia, will increase production following the meeting on the third of August.
Prices drop in these cases
Al-Shobaki does not rule out a significant decline in prices in the event of a recession in the world, with the US Federal Reserve and the world’s central banks heading to raise interest rates to curb inflation rates.
This may support the new plan of sanctions that may include setting price ceilings for Russian oil, a plan that will have a significant impact on Russia, which depends half of its revenues on selling oil, but this will need the support of large consumers, especially China, India and South Korea.
He points out that if the plan is approved and effective, it will result in a reduction in prices because there will be a parallel market to the market of the Gulf states, unless Russia takes an “adventure and suicide” by reducing its oil production, which is essential for its revenues.
The oil expert explains that if Saudi Arabia speeds up the “OPEC Plus” plan, it will have created the atmosphere for an “honorable withdrawal” for Russia from the group, which will refuse to increase production because it will result in lower prices, which is not in Moscow’s interest.
And if the group decides to increase production unilaterally, this will lead to more stability in the markets and “protect the world from social unrest or protests due to high rates of inflation, of which oil prices are half of the causes”, and this will also mean the “success” of Biden’s visit to Jeddah.
He ruled out that oil prices would reach less than $50, unless a recession became a reality in several countries, and “OPEC” continued its production without restriction.
