Conventional energy prices opened today, Monday, with a decline of more than 1% for Brent crude, amid the continued decline in natural gas prices.
It seems that recession fears are proving their feet day following day in the traditional energy sector, which has been recording sharp declines and fluctuations for nearly 3 weeks, with increasing talk regarding the US economy actually entering a “soft recession”.
Analysts predict that if a recession occurs and is officially announced in the US market, it will start destroying demand for crude oil in particular, leading to lower oil prices.
In July 2008, crude oil prices reached $145 per barrel; By December of the same year, the price had fallen to $35 a barrel, according to historical crude oil data.
This crisis, while it may be less severe, is still present in the minds of major oil producers around the world, and perhaps one of the main reasons that prompted the “OPEC +” alliance to practice diplomacy in production increases,
According to Wall Street reports in 2008, a recession with a 10% drop in demand for goods might lead to a drop of $35-50 per barrel in oil prices.
There are several factors that are still currently keeping oil prices high; First, the Group of Seven major industrialized nations pledged to ban or phase out Russian oil imports amid the ongoing Ukraine crisis.
The European Union also announced a similar plan, but it requires a unanimous vote to ratify the ban, which has already happened and will be implemented from the end of this year.
Except for the expected recession on a large scale around the world under the current scenarios, high energy prices will remain present in global markets for several years, according to the current scenarios of the West and Russia.
Also, what will push to keep crude oil prices high, in the event of a recession, is the recent announcement by the US Department of Energy of a long-term repurchase plan for crude oil to replenish the country’s Strategic Petroleum Reserve.
The US Department of Energy announced a call for bids in the fall of 2022, to secure delivery in the coming years; The government expects prices to fall by then.
Earlier this year, the Biden administration ordered the release of 1 million barrels of crude oil per day for 180 days from the US Strategic Petroleum Reserve; The aim of this step was to lower the price of oil and ease prices.
The US decision came following gasoline and diesel prices reached all-time highs in local markets there, with national averages of $4.40 and $5.55 per gallon, respectively.
And in Monday morning’s trading, the oil price fell, giving up earlier gains, to continue a series of losses recently, due to fears that the expected increase in interest rates in the United States, the largest oil consumer in the world, will limit the growth in demand for fuel. .
“The market trend is likely to remain bearish due to concerns that higher interest rates will reduce global demand for fuel and that the resumption of some Libyan crude oil production will reduce global supply tightness,” said Kazuhiko Saito, chief analyst at Fujitomi Securities.