Oil Has Recovered from A Nine-Month Low
On Tuesday, oil gained over 1%. The rise came after oil hit a nine-month low the day before, boosted by production curbs in the United States Gulf of Mexico ahead of Hurricane Ian and a minor weakening of the US currency.
Analysts anticipate that OPEC+ would arrest the price decline by restricting supplies. On October 5, OPEC+ will meet to set policy. Brent crude had risen $1.11, or 1.3%, to $85.17 per barrel. It plummeted to $83.65, its lowest level since January. WTI crude in the United States was up $1.08, or 1.4%, to $77.79.
Crude prices rose in early 2022. In March, Brent approached its all-time high of $147. The rise was due to Russia invading Ukraine, exacerbating supply concerns. Concerns of a recession, dollar strength, and high-interest rates have since weighed on the market. A pause in the strength of the US dollar, which had previously reached a 20-year high, provided some assistance. A strong dollar raises the cost of crude for buyers using other currencies and weighs on risk assets. The price decline has fueled expectations that OPEC+ will act. Iraq’s oil minister said on Monday that the group kept an eye on prices and did not want them to skyrocket or plummet. Only a reduction in OPEC+ output can stop the downward momentum in the short run.
APPEC Global Oil Prices May Stay Under $100
According to Trafigura, global oil prices may remain below $100 per barrel for the rest of the year as central bank rate hikes limit credit and reduce investments in risk assets such as commodities. Brent crude rose to multi-year highs of approximately $139 per barrel in March following the Ukraine crisis but has since fallen to around $85, driven by a strong dollar, interest rate hikes, and concerns about a recession that might depress oil demand. Prices are predicted to continue to be volatile as market liquidity has tightened and an EU sanctions on Russian oil is imminent.
However, the Chinese economy is not performing as poorly as many believe, and Europe’s oil consumption is limited by a lack of supplies rather than by demand destruction. If China relaxes COVID-19 limitations and the US Fed pauses or cuts interest rates to stimulate the economy, oil consumption might increase next year.
With low global oil stockpiles and underinvestment in the oil sector, these reasons might eventually send Brent back above $100 per barrel.
Amid falling prices, the oil market is also looking for possible supply adjustments from the Organization of Petroleum Exporting Countries.
Global Energy Sales Slowly Erode
Over the next few years, Europe’s Big Oil firms will see their energy sales diminish as the rising output of renewables and low-carbon fuels only partially compensates for a fall in oil and gas.
Shell, BP, and TotalEnergies (TTEF.PA) have recently announced intentions to increase investments in renewable energy and biofuels to reduce greenhouse gas emissions in the face of mounting investor and government pressure.
However, the corporations with extensive retail networks and trading operations sold more than three times the volume they generated, at 134.72 PJ/day, accounting for 8.15% of worldwide energy consumption.
By 2025, the group’s total energy production should fall to 2.52% and sales to 7.95% of world energy demand. The number of renewables and low-carbon energy in the mix will increase to 5%, partially offsetting oil and gas production reduction.
According to JPMorgan analyst Christyan Malek, while Big Oil companies will continue to provide a large portion of the world’s energy, supply will fall short of the predicted expansion in demand.
Long term, their energy supply falls short of global demand trends, risking worsening a growing global downfall if they continue to prioritize shareholder profits and decarbonization above investment.
