In recent weeks, the oil market has experienced tremendous turmoil. Another turbulent episode is in the last two days: on Tuesday, March 15, the price of Brent fell by 8% to $ 97.50 a barrel. The American variety WTI has suffered a similar decline, writes Deutsche Welle.
Yesterday, March 16, there was an initial rise in prices, followed by another decline. The rapid sell-off of the oil market brought prices closer to pre-war levels. Thus, almost all the profits made after the Russian invasion of Ukraine were erased.
What are the reasons for the lower prices?
On March 7, the price of Brent reached $ 137 per barrel. It is currently about $ 40 lower. However, the war is still going on. What is the reason for the lower price then?
Even if there are first signs of easing tensions between Kyiv and Moscow, it will be a long time before the conflict ends peacefully. “Sanctions against Russia will continue for a long time and many buyers will refrain from buying Russian oil,” said Carsten Fritsch of Commercebank.
The reasons for the fall in oil prices are rooted in thousands of kilometers of the war in Ukraine: in Iran. The Islamic Republic, which lost its top spot on Russia’s list of heavily sanctioned countries, has returned as an important player in the oil market.
According to Moscow and Washington, sanctions against Russia will not affect Russia’s partnership with Iran on nuclear issues and the nuclear deal between Iran and the West. Thus, the way to lift US sanctions on Iran is free, and this would mean new oil supplies, Fritch explained.
Fracking is booming and demand is declining
In addition, fracking is again of interest in the United States. Due to the rise in oil prices, the controversial shale gas production is paying off again. The number of active oil wells in the United States is currently about 500. Before the pandemic, it was over 800. The US Energy Information Agency expects shale oil production in the United States to reach over 8.7 million barrels per day in March alone.
But changed attitudes in oil demand also play an important role. Along with the Chinese policy of the so-called “Zero value of Kovid-19”, in China the need for oil has decreased – due to strict measures against new regional outbreaks of coronavirus, millions of metropolises have simply been cut off, production in factories has been stopped, ports have been closed.
In addition, problems inevitably arise with supply chains and limited opportunities to sell goods. And as demand declines, so does the price.
No new price peak is expected this year
Will lower oil prices remain or should we expect another jump? Market expert Robert Retfeld draws attention to China’s low economic growth. In mid-March, Beijing authorities announced their expectations for “5.5 percent growth in 2022” – the lowest value in three decades. That’s why Retfeld is sure: “The $ 137 peak will probably remain the peak of the year.”
That would be good news for both companies and consumers. It may be some time before they feel the favorable development of oil market prices. But the direction is good.
–
