Quick Bites | Oil price fades

Oil is the world’s most traded commodity. It has been the commodity largely blamed for the spike in global inflation over the last year. Spurred by the war in Ukraine, oil prices jumped above $100 per barrel to levels not seen since 2014. Since then, it has stabilised as inflation slowly trickled lower, despite OPEC+ production cuts.

In the last few days, crude oil has wiped out the gains it made following the surprise output cuts of a few weeks ago. Those supply cuts put global markets on track for a deficit that was expected to widen as the year progressed and provoked fears that the benchmark price was heading back above $100. OPEC+ described the cutbacks as a “precautionary measure aimed at supporting the stability of the market,” but it was widely seen as a straightforward attempt to hoist prices.

Source: Bloomberg


Since the production cuts, brent crude has drifted below $80 a barrel amid concerns about higher interest rates, slowing global growth, and softening energy demand.

There have been reports that Russia is struggling to keep up production without the benefit of Western service companies that have wound down their operations since the invasion of Ukraine. Saudi production has also been below its production quota set by OPEC in recent months. Taking up the slack are Brazil, Canada, Norway, and the US. The global oil market is roughly 102 million barrels a day.

Oil demand continues to rebound from the global slowdown during the pandemic. World diesel demand has nearly recovered to its pre-pandemic levels, and jet fuel demand continues to surge as China emerges from shutdown and global travel recovers.

While an increase in oil prices is taken as a sign of economic strength, it also increases the risk of inflation. The reverse is true as well: if the oil price continues to drift lower, that could mean that inflation is falling and that the global economy is entering a slowdown. That might be great news for central banks, which are probably nearing their targets for interest rate hikes.




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