Oil prices and the recession graph: What will happen to oil prices this week?
The price of Brent, which fell to nearly $92 a barrel on Tuesday, came close to $97 a barrel on Friday. The U.S. DOE report showed a 7.1 million-barrel decline in commercial and a 3.4 million-barrel decline in strategic crude inventories, or 1.2%, for a total of 10.5 million barrels.
The main factor was the increase in oil exports to a new record of 5.0 million barrels per day (mb/d). U.S. net oil imports fell to an all-time low of 1.1 mb/d as a result. U.S. oil production estimates also fell by 0.1 mbps to 12.1 mbps. However, fluctuations in export and import flows from week to week are temporary factors that cannot support the price of oil for long.
Oil and gas quotes – what’s happening in the market?
Demand for petroleum products in the U.S. is a much more important driver. U.S. gasoline shipments rose 2.5% over the previous week and 0.2% year-to-date to 9.35 mbps, also 3.1% above the four-week average. As a result, gasoline inventories fell by 4.6 million barrels, or 2.1%. Gasoline supplies provide an indication of the dynamics of demand. They have declined year-over-year for nine consecutive weeks, with a 13% drop twice in July. Therefore, even a slight increase in apparent demand is perceived by the market with optimism.
Oil prices strengthened as gas prices rose rapidly to new records: the monthly TTF contract closed Friday at about $2,600 per thousand cubic meters, adding 19% over the week.
In terms of energy units, gas is now more than four times more expensive than oil in Europe. This is why everywhere possible, gas is being replaced by oil products – particularly in the energy and petrochemical industries. The total volume of substitution is not great, but it is enough for gas prices to start “pulling up” oil prices.
This dependence will continue to affect the oil market in the coming weeks. That is why, he said, “we are not expecting a sharp drop in oil prices while gas in Europe is trading above $2,000 per thousand cubic meters. Analysts forecast that Brent will stay above $95 per barrel in the new week.
At the same time, the alarming dynamics of diseases and quarantines in China limit the potential for oil growth. The new outbreak in Hainan province is likely to be localized, but the experience of the last months suggests a high probability of new outbreaks. Therefore, the forecast is a $95-100 range for Brent over the coming week.
Earlier we reported that a fall in Brazil’s harvest will trigger a rise in black coffee prices.
Brent crude oil futures its lowest since 2021 amid banking crisis
The cost of May futures on Brent crude oil fell to $72.74 per barrel, losing 0.31%, according to data from the ICE exchange. Brent was trading at about $70 a barrel at its low for the day. That’s a record low for at least 15 months, that is, since December 2021.
WTI prices are also falling, with futures prices down to $66.43 a barrel (-0.46% from last week’s close), according to the exchange. WTI was trading at $64.12 a barrel at its low for the day. This is also the lowest value since at least December 2021.
The market is thus responding to the banking crisis: since the beginning of March, three banks (Silvergate Bank, Silicon Valley Bank, Signature Bank) have closed their doors in the US, and the day before, on March 19, Swiss UBS took over its rival, Credit Suisse, buying the bank for $3.2bn amid fears of its collapse. Investors fear a recession, which may cause a crisis in the banking sector, as a recession, in turn, would lead to lower demand for fuel, the agency said.
“Oil prices are moving mainly because of fears [of further oil price dynamics]. Supply and demand fundamentals are almost unchanged, only the banking problems have an impact,” said Price Futures Group analyst Phil Flynn.
Oil prices lifted from daily lows helped the S&P 500 and Dow Jones indices, which rose Monday, writes Reuters. Traders raised their expectations that the U.S. Federal Reserve would refuse to raise rates this Wednesday to protect financial stability amid banking problems, the agency noted.
“Volatility is likely to persist this week, with broader financial market concerns likely to remain at the forefront,” ING Bank analysts said in a note. They add that the impending Fed decision adds to uncertainty in markets.
Earlier we reported that the price of Brent dropped below $75 per barrel for the first time in more than a year.
Gold prices will reach $2,075 “in the coming weeks”
Gold prices may continue to rise, analysts polled by the CNBC TV channel said. In their opinion, the difficulties of banks and a possible turning point in the policy of the Federal Reserve indicate the possibility of a new rise in gold prices.
“I think it’s likely that we’ll see a strong move in gold in the coming months. The stars seem to be aligned for gold, and it could soon break new highs,” said Craig Erlam, senior market analyst at brokerage Oanda.
The expert explained that interest rates are now at or close to their peak, and the market, amid recent developments in the banking sector, is laying on an earlier than previously expected start of rate cuts. They also added that this situation would boost demand for gold even if the U.S. dollar weakens.
This month, Fitch Solutions rating agency predicted that gold prices would reach $2,075 an ounce “in the coming weeks” amid global financial instability, writes RBC. The company also added that gold prices will remain at a higher than pre-pandemic levels in the coming years. Craig Erlam confirmed this forecast.
Other Wall Street experts are also predicting a long-term rise in gold prices. For instance, Tina Teng, analyst for British financial company CMC Markets, thinks that the U.S. Federal Reserve’s sooner departure from its policy of raising interest rates might provoke another rally in gold prices due to the weakening U.S. dollar and falling bond yields.
Earlier we reported that oil prices accelerated their decline, continuing a trend from the beginning of the week.
Analysts at U.S. bank Goldman Sachs revised its forecast on oil prices
Analysts at U.S. bank Goldman Sachs, one of the most optimistic forecasts about the cost of oil, changed its earlier forecast about the growth of oil prices to $100 in the next 12 months, Bloomberg said.
Now analysts predict that Brent crude oil will reach $94 per barrel in the next 12 months and $97 per barrel in the second half of 2024, the publication said.
The bank said oil prices have fallen despite rising demand in China, given pressure on the banking sector, recession fears and investor withdrawal.
“Historically, after such traumatic events, price adjustments and recoveries are only gradual,” the bank notes.
This week, the situation surrounding Swiss bank Credit Suisse triggered panic in the markets as oil plummeted to a 15-month low and Brent crude fell 12% to below $73 a barrel.
After the price decline, the bank expects OPEC producers to increase production only in the third quarter of 2024, contrary to Goldman’s forecast that it will happen in the second half of 2023. Analysts at the bank believe a barrel of Brent blend will reach $94 in the next 12 months and trade at $97 in the second half of 2024.
Bloomberg reported that the largest oil exporter, Saudi Arabia, announced higher April oil prices for markets in Asia and Europe.
Earlier, we reported that Iraq and OPEC advocated for guarantees of no fluctuations in oil prices.
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