The price of Brent crude oil has been subject to huge fluctuations in the last several months. According to MUFG analysts, the price of the raw material may still shoot up to over $ 140. per barrel in the third quarter of 2022.
Crude oil decreased by about 5% in July. Technical recession in the US
Brent crude oil fell by around 5% in July. Growing fears of recession were the main factor behind the decline. They were confirmed by Thursday’s GDP reading for the second quarter in the United States with the value of -0.9% from quarter to quarter (annualized data). This is much less than the market consensus of analysts who expect 0.4% on average. The second negative result in a row means that we can already speak of a “technical recession” in the United States. But not yet about the “official” recession that the NBER (National Bureau of Economic Research) must announce. However, the market does not need the agency’s announcement to interpret the macroeconomic data.
Recession fears, stagflation around the corner?
The concerns about the economic slowdown turned out to be more important than the tightening of the oil market caused by the limited OPEC + processing capacity or the consequence of the invasion of Ukraine in the form of a reduction in the Russian gas supply. – The continued tightening of the oil market is reinforced by expectations that the supply of Russian oil will decline in the coming months as plans for a price cap on Russian barrels could have an adverse effect on oil prices than anticipated. – stated the analysts of the investment bank MUFG. Nevertheless, experts from MUFG believe that the downward trend in oil prices turned out to be exaggerated. – While the risk of a future recession is rising, the key to our bullish belief is that the current oil market deficit remains unresolved. – they added.
Also check: The price of Brent crude oil is falling. Concerns about a global recession are gaining importance
Demand for oil will increase, the MUFG estimates
MUFG estimates indicate that demand in Q3 2022 will remain at the level of 100.3 million barrels per day (bpd) compared to 98.7m bpd in Q2 2022, with a general increase in demand this year at the level of 2, 5 million bpd on an annual basis. Moreover, MUFG analysts estimate that this quarter there will be a destruction of demand caused by high oil prices by 0.7 million bpd.
Brent crude oil rate. Source: tradingview.com – While the likelihood of a recession is rising, it is premature for the oil market to give in to such fears now. The global economy continues to expand, although slowing (not contracting), and the rise in oil demand this year is expected to far outstrip GDP growth, supported by the reopening of the COVID economies in Asia, as well as the resumption of international travel stimulating demand for aviation fuel. – MUFG analysts commented on the current situation.
You can invest in CFDs on commodities with the Plus500 broker, among others. Create an account and start trading.I WANT TO TRADE CFDs ON RAW MATERIALS 77% of retail investor accounts lose money when trading CFDs with this provider. Consider whether you can afford the high risk of losing your money. While our view remains that higher consumer prices are necessary to balance the oil market this summer, we recognize that significantly large shocks continue to distort the fundamentals. – they added. Russian exports turned out to be higher than expected after Russia’s invasion of Ukraine, mainly due to the lack of stringent oil sanctions. However, this was fully offset by production losses in Libya, with Saudi Arabia also producing less than expected in June. – It is hard to assume that such supply disappointments will persist, but growing public unrest related to higher fuel and food prices means that such concerns may reappear. MUFG analysts said. The MUFG forecast assumes that the price of Brent crude oil will reach an average price of $ 141. per barrel in the third quarter of 2022.
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