The price of oil does not rise further. Analysts predicted that the price for a barrel of oil will be well above $100 in the fourth quarter, but so far the market is not moving in that direction. The deteriorating economy is putting pressure on the oil market and the US government is doing everything in its power to bring the oil price down.
With a production drop of 2 million barrels, OPEC+ managed to briefly reverse the downward trend in oil prices. At the end of last week, the oil price for a barrel of Brent was not only at its highest point in a week at $97,92, but was even the highest since the end of August. This week the market slowed down. At the time of writing (October 14), the price of crude oil is hovering around briefly below the $95 per barrel level.
Most analysts estimated last week that the rising prices on the oil market would continue for a while due to OPEC+'s measure. Investment bank Goldman Sachs predicted that the price of a barrel of crude oil will fluctuate around $4 in Q110. But so far, little has come of this prediction.
Other economic forces appear to determine the course more than the intervention of the oil cartel. For example, the difficult economic situation. In particular, interest rate increases from various Western central banks are causing demand for oil to lag behind. This does not go unnoticed by the major players in the oil market. Both the US Energy Department and OPEC have now lowered their expectations for oil demand.
The oil market is also sluggish outside the west. In China, ongoing lockdowns against the coronavirus are disrupting oil demand. In addition, analysts note that Saudi Arabia, the leader of OPEC, does not appear to be adhering to its own production target reduction. The country continues to supply various Asian countries, making a decline in production unlikely in practice.
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The United States focuses on low prices
Yet the stagnant economy is not the only reason that oil prices are falling. OPEC+ has awakened a powerful opponent with the production cut. The United States is not at all happy with the intervention, because the American government has little interest in high oil prices. Since the end of 2021, gasoline prices in the country have been much higher than the average American would like. A challenge for the Biden administration, because in a country where many miles are driven, high gasoline prices create a weak starting position in the upcoming mid-term elections next November.
Since OPEC+'s intervention, relations between the US and the oil cartel have been on edge. In several speeches, President Biden warned in militant language that Saudi Arabia can expect consequences for the decline in production. Senator and chairman of the Senate International Relations Committee Bob Menendez even suggested ending any form of cooperation with Saudi Arabia. The United States is not going that far at the moment, but the American government is pulling out all the stops to keep the oil price down. The fact that the total oil storage of several US companies continues to rise by millions of barrels per week does not prompt the government to stop releasing strategic reserves.
Diesel
The diesel market does not seem to care much about the falling oil price. This week the upward trend in the price of diesel continued. On Friday, October 7, 100 liters of diesel cost €163,76. On Monday, October 12, the LTO member price for 4.000 liters was at the lowest point of €161,52 per 100 liters of diesel. At the time this article was written, the price of diesel has risen to €169,73. That is not strange, because diesel is mainly made from Russian oil. Due to sanctions, less and less oil is coming in from that country and in December member states of the European Union will no longer be allowed to import the raw material from the country at all