The oil market is down this week. Interest, inflation and corona keep market players busy. Concerns about a potentially disappointing demand for crude oil and diesel as a result depressed prices. Bullish news is certainly out there, but traders and speculators seem to be equally immune to that.
The oil market is in a dip in the first week of 2023. On Friday, December 30, Brent crude oil was at $85,91 per barrel. On Wednesday, January 4, the price dropped to $77,84 per barrel. The price of crude oil has now risen slightly and is now around the level of $79 per barrel.
Within the oil market, disappointing expected demand for oil plays a leading role. Interest rate increases, inflation and a corona wave in China are putting a brake on economic growth and therefore on the demand for oil. The Chinese government is reportedly issuing additional export licenses for the export of oil distillates before early 2023. The price cut that Saudi Arabian oil company Aramco has implemented for its European and Asian customers to the lowest level since November 2021 is also seen as a sign of weak oil demand.
However, there are certainly bulls in the market, but they are losing out at the moment. Figures from the Energy Information Administration (EIA) show that US fuel supplies have fallen sharply after the extreme cold around Christmas. A disruption in a fuel pipeline in the US also did not really make the market nervous. The effect of the price ceiling for oil from Russia is still a major uncertain factor. For the time being, Russian oil still seems to be finding its way easily on the world market, albeit well below the price ceiling. Ural oil already reached $50 per barrel this week, just under $10 below the maximum proposed by the G7.
Long term vision
Another factor that could have significant consequences for the oil price in the long term is the lack of investments in fossil energy. Several experts affiliated with the oil industry point out that the EU and the US have great ambitions in the field of greening. The practical implementation is rather lacking. Europe's dependence on gas from Russia is an urgent warning that putting all eggs in the same basket could have major consequences, resulting in an energy crisis. However, that message seems to have been partly forgotten and risk spreading no longer seems to be at the top of the political list.
An example that some experts mention is the extra tax that EU energy companies have to pay on the extra profit due to high energy prices. The American oil company is also filing a lawsuit against the European Commission because the company believes that the Commission has no authority to impose this tax. The underlying problem is simply left out of consideration. Europe is dependent on fossil fuels. Efforts are underway to reduce this dependence, but this is not yet enough to provide a real alternative to oil and gas. At the same time, investments in new oil and gas sources are discouraged by such an additional levy, for example. As long as good, well-considered choices are not made, the energy crisis will continue to fester, even though the worst seems to be behind us now that oil and gas prices are taking a step back.
Diesel
The diesel price, like crude oil, has taken a step back this week. On Thursday, January 5, the recommended retail price was €130,82 per 100 liters. The EIA estimates that diesel prices on the American market may fall further in the first half of 2023. The cause is a dip in production in American industry. The European futures market for diesel is also showing a decline in diesel prices. The current contract is 16% above the June contract. This is also a signal that the diesel price still has room for a decline in the near future.