When oil prices fall, many costs for industry and agriculture generally follow, including chemicals and fertilisers. And shipping becomes more economical. But when they rise sharply, as they did in 2008 and in the 1970s, they tend to raise other prices and depress the overall economy. And political fallout often follows.
Predicting energy prices has always been a fool’s game because there are so many factors, including the expectations of traders who buy and sell fuel, the political fortunes of volatile producing countries like Venezuela, Nigeria and Libya, and the investment decisions of state and private oil. business managers.
Today, these complexities are particularly difficult to assess.
“(When) will the Oil Bulls start revising their forecasts down?” was the title of a recent Citigroup commodities report. With a global recession “on the horizon,” it says, “what’s more likely, a robust hurricane season, where prices skyrocket? A return of Iranian barrels? Or a recession, with oil in the $60s by the end of the year/early 2023?” If a barrel of oil were to fall to $60 a barrel, the average gasoline price in the United States would likely fall by at least another dollar a gallon.
But days after Citi’s estimate, Goldman Sachs Commodities Research predicted a jump in prices as fuel demand picks up again. “We see increasing risks to commodity prices inherent in the scenario of sustained growth, low unemployment and stabilized household purchasing power,” the report concluded.
The war in Ukraine remains a major variable in the global supply outlook since Russia normally supplies one in every 10 barrels of the global 100 million bpd market. Since the invasion of Ukraine, daily Russian exports have fallen by around 580,000 barrels. European sanctions against Russian oil are expected to tighten somewhat more by February, reducing daily Russian exports by another 600,000 barrels.
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And as Russia further tightens its grip on natural gas sales to Europe in retaliation for sanctions, European energy companies will be forced to burn more oil to replace gas.