Oil Falls Below $90 for First Time Since War as Demand Slows
Comment of the Day

August 04 2022

Commentary by Eoin Treacy

Oil Falls Below $90 for First Time Since War as Demand Slows

This article from Bloomberg may be of interest to subscribers. Here is a section:https://www.livemint.com/news/world/oil-falls-below-90-for-first-time-since-war-as-demand-slows-11659629203283.html

Prices falling below $90 a barrel “is quite remarkable given how tight the market remains and how little scope there is to relieve that,” said Craig Erlam, senior market analyst at Oanda. “But recession talk is getting louder and should it become reality, it will likely address some of the imbalance. Just not in the way we’d like.”

Crude has now given up all the gains triggered by Russia’s invasion of Ukraine in February. Since peaking at more than $130 a barrel in March, the US benchmark has been dragged lower by signs that Moscow is still getting its cargoes onto the global market and escalating investor concerns that a global slowdown will erode energy consumption. 

Despite the recent price weaknesses, Saudi Arabia raised its oil prices for buyers in Asia to a record level, a sign the world’s largest exporter sees the region’s market remaining tight. OPEC+ agreed to boost supply by a meager 100,000 barrels a day in September, while issuing a stark warning on “severely limited” spare capacity. 

Eoin Treacy's view

I have been at pains to highlight the fact analysts often make the mistake of treating demand as a constant. That conclusion works most of the time. Oil demand has tended to rise with living standards, so it is reasonable to predict a constant growth rate in demand. The challenge is demand is much more volatile at major market peaks. That’s when the adage the cure for high prices is high prices becomes most relevant.

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