After the big increase of the last three weeks, the oil price has corrected sharply downwards this week. Focus on the sluggish US economy is causing prices to fall. Even strong growth in Chinese oil consumption does not cause prices to rise.
After the strong increase last month, the oil price fell sharply again. On Wednesday, April 12, the oil price was at its highest level since the end of January, at $87,33. Eight days later, the oil price is 6,1% lower. At the time of writing (Thursday, April 20), the Brent benchmark is trading at €81,99.
OPEC+'s decision to cut their oil production by 1,16 million barrels per day does not appear to be dominating the market at the moment. Until last week, the oil cartel's decision provided a price boost on the oil market. In just three weeks, the oil price rose by as much as 20%. A correction to that increase took place this week. This does not mean, however, that OPEC+'s decision will no longer have any impact for the time being. The lower production targets will come into effect in May. It is therefore quite possible that the oil price will rise again if supply from the Middle East and Russia dries up.
US oil market dominates news
A focus on the US oil market appears to be pushing oil prices down. Low consumption in the United States has been putting pressure on oil prices for some time. But at the moment, news about the US economic stagnation is crowding out all other news in the oil market. For example, a lot of attention has been paid to a Reuters survey among economists. That survey shows that economists expect the United States to implement one more interest rate increase of 2023 percentage points in 0,25.
A further slowing economy could lower oil prices. In addition, the interest rate increase ensures a higher value of the dollar. Because oil is traded in dollars, a strong dollar causes higher oil prices outside the United States. This could well slow down demand for oil.
China is ignored
There was, however, slight upward price pressure from China this week. There is a clear upward trend in Chinese processing of oil products. Chinese refineries currently process about 14,9 million barrels per day. In the first two months of 2023, 14,36 million barrels per day were processed. In November and December 2022, the processing capacity was 13,98. Since China started releasing its corona measures, oil demand has increased by as much as 6,5%.
In recent months, optimism about the Chinese market has regularly caused oil prices to rise, but this week the news has barely managed to gain traction on the market. On the day the news came out (Tuesday, April 18), the market remained roughly in balance. The news that day seemed to mainly compensate for the negative sentiment from the United States.
The diesel price is currently fairly stable. On Thursday, April 13, diesel was trading for €117,29 per hundred liters. On Wednesday, April 19, the price of diesel dropped to €115,09. This means that the diesel price is moving, just like last week, in the bandwidth of between €115 and €117,50. After the large increase in the last three weeks, the oil price has been corrected sharply downwards this week. Focus on the sluggish American economy causes prices to fall. Even strong growth in Chinese oil consumption does not lead to rising prices.