The oil price has fallen sharply this week after a number of price-pressing factors came together. For example, at a precarious moment, Russia produced more oil than the country had agreed within OPEC+. In addition, the policy of the American central bank (Fed) is not friendly to the oil market and American reserves continued to increase.
The oil price continues to fall. On Thursday, May 16, oil traded at $83,27 per barrel. A day later the price rose to the highest point of the week. On Friday, May 17, oil traded at $83,98 per barrel. On Thursday, May 23, the oil price was significantly lower, at $81,50.
An important reason for the lower oil price is that Russia has exceeded OPEC+ standards. According to the Russian government, there is a technical reason behind this and the country will quickly submit a proposal to OPEC to remedy the situation, Russian Energy Minister Aleksandr Argejev indicated in the Russian media. The overproduction comes at a painful time, as Russian Deputy Prime Minister Alexander Novak hinted at higher oil production two weeks ago. In addition, there was discussion within the cartel last week about production volumes. Five of the 22 countries have declared themselves in favor of higher targets. Russian overproduction could well serve as an argument for countries that would like greater oil production.
New interest rate increase?
The pressure on the oil price increased sharply on Wednesday, May 22, after the Fed released the minutes of its meeting. It can be read that the path to an American interest rate cut is taking longer than expected. This is due to disappointing inflation indicators. The minutes even show that there was discussion about whether the economy is being slowed down enough to combat inflation. Several officials have expressed their doubts about this. The market is interpreting this discussion as a possible prelude to a new increase.
Yet it is far from certain that the Fed will raise interest rates again if inflation persists. At the same time, there is also the question of whether the increases have sufficient effect. The minutes show that the idea is that higher interest rates have less grip on the economy, as companies and consumers fixed the interest rates on their loans when money was virtually free. This weakens and delays the effect of high interest rates. This is an argument against a new increase, as the decline in inflation is mainly a matter of time.
US oil reserves
In addition, the imbalance in the American oil market is still a concern. Since the sharp decline in US commercial oil reserves, inventories have increased sharply again. This is evident from data from the American Energy Agency (EIA). This week, reserves increased by 1,83 million barrels. The market expected reserves to increase by 2,55 million barrels. It is notable that American inventories of distillates have also increased. Until now, overproduction of crude oil combined with underproduction of fuels has driven inventory growth. The overproduction of oil is now so significant that the higher production of distillates can no longer compensate for oil production.
The diesel price does not move in parallel with the price of oil and is moving upwards. On Thursday, May 16, €126,89 per 100 liters. The diesel price actually rose for most of the week. On Monday, May 21, the diesel price reached €128. On Wednesday, May 22, the price dropped to €127,34.