The oil price is going through a stable phase. Two economic forces are currently balancing each other. Due to interest rate hikes, there are fears that demand for oil will decline further, but supply is also low at the moment. However, there is a fear that the import ban on Russian oil will cause diesel shortages.
The price of oil is quite stable at the moment. The price of Brent Oil fluctuated between $92 and $96. On Thursday, October 27, the oil price was $95,40. The price then fell to its lowest point of the week at $92,81. On Wednesday, November 2, the price rose again to $96,16, the highest level of the week. After this top, the price found its way back down.
Due to the sluggish economy, international demand for oil has been low all year. However, according to analysts, demand will decline even further in the short term. To get inflation under control, the American central bank (FED) implemented another significant interest rate increase of 2 percentage points on Wednesday, November 75. It is very likely that the central banks of other major economies will follow the Fed's decision. Because this makes borrowing money more expensive, it brings a global recession one step closer. As a result, demand from the industry is shrinking.
The fact that the oil price does not fall sharply in response to the interest rate increase is mainly the result of lagging supply. The OPEC+ countries have been producing less oil for about a month now. Due to declining demand, the oil cartel decided to reduce production targets by 2 million barrels. This sharp production cut compensates for the disappointing demand, which meant that the price of oil throughout October was about $11 to $15 higher than before the intervention.
So far, the United States has been able to compensate for OPEC+'s lower production with its growing exports. However, it remains to be seen how long America will be able to do this. There are cautious signs that production in the US is declining. For example, US oil inventories fell last week, while the US Energy Agency expected inventories to grow.
A diesel shortage is looming
It is almost certain that the oil supply in Europe will fall even further. From December, the European Union will stop importing Russian oil. This mainly has an impact on diesel production. Russian oil is thicker than oil from, for example, Saudi Arabia or Europe, which makes the oil particularly suitable for diesel production. Russia effectively supplies about 15% of diesel demand. This concerns both the diesel that comes from Russia and the Russian oil that is processed into diesel.
The fact that Russia only supplies 15% of European diesel demand does not mean that the loss of Russian oil can be easily absorbed. The refineries that process Russian oil cannot simply switch to oil from other areas. Converting refineries to a different type of oil is a long and expensive process, so the oil ban will almost certainly shut down part of European diesel production.
It will be quite a job to absorb this disruption, because European diesel reserves are currently not large. According to the International Energy Agency (IAE), there has been so little diesel stored in the European Union since 2011. Importing diesel from America is not a solution at the moment, because the same problem exists in the United States. The US can only survive on its supplies for 25 days. We already see in practice that the US is less willing to export diesel. Recently, several ships transporting American diesel to the EU turned right. The problem has now reached European politics. CDA MEP Antonius Manders submitted questions about the shortages to the European Commission on Wednesday, November 2.
The diesel price pays little attention to the concerns surrounding shortages. The LTO member price for diesel has been decreasing since Thursday, October 29. On October 28 and 29, the price of diesel was the highest, at $166,59. From Monday October 31, the diesel price fell sharply. At that time the diesel price was €166,23 per 100 liters. On Wednesday, November 3, the price had fallen to €152,90.