The downward momentum continues in the oil market. Oil is relatively expensive and the economic outlook is less optimistic than it was a few weeks ago. This shifts the attention of traders to the demand in the market rather than the supply.
The price of Brent crude started this week with a cautious plus of $0,60 from Friday and closed Monday at $114,21 a barrel. This increase has only proved to be short-lived. On Thursday, June 23, the Brent quote closed below $110 a barrel for the first time in over a month, at $109,88 a barrel. In the meantime, the price has risen slightly again and stands at $112,93 per barrel during the writing of this article.
Most analysts agree that the bears have prevailed in the market. The main force in this area is the expectation for economic growth. Inflation has risen sharply and central banks have raised interest rates for the first time in years. On top of that, the first figures are coming out that economic growth is starting to weaken. For example, the PMI index published yesterday (which measures the confidence of buyers in the US) came in sharply lower than what the market was counting on. That puts considerable pressure on the oil market. Several government leaders have tried without much success to dampen the rise in oil prices to avoid such a scenario. Now that high energy prices are actually threatening to harm economic growth, the oil price starts to decline almost out of the blue.
Production
Although the upside in the oil market seems to have broken, several analysts warn that this does not immediately mean that the oil price will fall back to the level of the end of last year, the starting point of the current rally. This group mainly points to the limited supply. OPEC+ has raised production targets for July and August, but countries have already struggled to fill quotas in recent months. The export of oil from Russia - one of the few countries with serious spare capacity - has become more difficult due to the sanctions. The necessary Russian oil is seeping into Asia, but the effect is only visible to a limited extent.
The lower oil price is slowly leaking through the diesel price. The peak this week was on Monday, with a price for diesel of €175,87 per 100 litres. Today that has dropped to €170,05 per 100 litres. That is a decrease of 3%. That seems like a lot, but the crude oil already started to take steps down two weeks ago, while the diesel price was still rising.