Crude oil prices fell to their lowest level since January this week. Monetary policy clearly has more impact on the market than OPEC+ statements. Diesel does not participate in the downward trend on the Dutch market.
The oil price is under pressure. At the beginning of this week, Brent crude was still trading above $90 a barrel. Today (Friday, September 23) the price has dropped to $85,83 a barrel as of the writing of this article. That is the lowest level since January. If the price does not rise sharply in the last hours, it would be the fourth week in a row in which the oil price has to give up.
The interest rate hikes of the central banks, led by the Fed, are the main reasons for the falling oil price, according to analysts. The Fed raised interest rates by 75 basis points on Wednesday. The Fed also indicated that controlling inflation outweighs economic growth. Another effect is that the dollar exchange rate also rises due to the interest rate policy. That effectively makes oil more expensive for countries with currencies other than the dollar.
Negotiations to resume the US-Iran nuclear deal appear to be coming to nothing. The deal was shelved in 2015 by then-President Trump. A resumption would mean that Iranian oil can again be traded more easily on the world market. According to some analysts, the breakdown of the negotiations was already more or less priced into the market. Opec+ announced earlier this month that it wanted to cut production quotas in order to keep the oil price at a high level. However, a number of countries within the cartel are already struggling to meet current production targets. The threat from Opec+ is therefore seen as a bit of a small beer by analysts.
Russia
What is striking is that the behavior of Russia seems to have only a limited effect on the crude oil market. In the short term, the supply is not directly endangered, but in the medium term, a further escalation of the war in Ukraine could have major consequences. Russia does have an interest in allowing oil to continue to be exported. After all, the proceeds are needed to finance the war. Finding buyers can be more difficult. A large buyer of oil such as China has an unerring sense of how Russia is doing and negotiates hefty discounts.
Diesel prices have been on the rise over the past week. The price of diesel has risen from €141,23 this week to €147,52 per 100 liters. In part, the difference in price movement with the crude oil can be explained by the difference in demand. What certainly also plays a role is Russia's relatively important position in the European diesel market. Under previous agreements, the ban on Russian oil in the EU and the US would come into effect on December 5. That date is fast approaching and a replacement for the Russian diesel has not been found one, two, three. Demand for diesel in the EU is growing as a backup for companies should gas supplies come to a halt. Diesel is still more expensive than natural gas, but if gas can no longer be supplied, companies think it is a safe idea to have an alternative.