The oil market is struggling to choose direction. On the one hand, there are signs of relatively small stocks of both crude oil and fuel, and demand that is holding up well despite high prices. On the other hand, analysts are looking at the economy with suspicion. High inflation and the Fed turning the interest rate knob hard cannot continue to go well and must have consequences that eventually have an effect on the demand for oil.
The oil market gained upward momentum early in the week. On Tuesday, June 28, the price of Brent crude oil rose to $118,15 per barrel, its highest point this week. The price of Brent oil has now fallen again and the last trading session closed at $109,03 per barrel. With the exception of a few cents, the price is equal to the closing price exactly a week ago.
The line between too much or too little oil is thin. Will oil production struggle to keep up with demand or will a possible recession put a brake on demand and will we have an oversupply of oil again next fall? That is the central question for many analysts. Good arguments and indicators can be put forward for both sides. So the penny can roll both ways. Despite the fact that the price is under some pressure, the demand for oil seems to be decisive in the short term.
Political game
The increase in the oil price earlier this week can be partly explained by the G7 summit that took place at the beginning of this week. Traders and investors feared that sanctions and counter-sanctions between the West and Russia would get further out of hand. It is a thorn in the side of Western countries that the Kremlin still receives significant income from the export of oil and gas. Some sources hinted at further measures to at least cap those revenues for the Russian treasury. The G7 countries are partly dependent on energy from Russia, in which oil (in addition to gas) plays a prominent role. The gap in oil supplies that would occur if Russia suddenly stopped supplying the G7 countries cannot simply be filled by another player.
Opec+ decided on Thursday, June 30, to stick to the strategy outlined last month of further expanding production quotas. In July and August, production is increased by 648.000 barrels per day. Given the good demand for oil and tight supplies, some analysts expected (or perhaps hoped) that production would be increased further. On the other hand, the necessary members of the cartel are already having difficulty filling their production space. You can therefore ask whether a further increase would not be an empty gesture.
The diesel price has taken a big step back this week. From €170,33 per 100 liters at the beginning of this week, the price has fallen to €161,21 per 100 liters today, Friday 1 July. Oil and diesel prices have been out of step with each other for almost the entire month. It is therefore not surprising that a correction is now taking place in the diesel price, while crude oil had a relatively stable week.