Concerns about a recession in major oil-consuming markets have weighed on oil prices in recent weeks. Last week, oil fell to the lowest level in six months, a level last seen before the Russian invasion of Ukraine. This drop was due to concerns about economic growth in China, the world’s leading importer of crude oil, and in Europe and the US amid high inflation and aggressive interest rate hikes.
The oil market has turned bearish this summer on fears of slowing oil demand in a recession. Add to this the still resilient Russian offer – contrary to initial expectations of big losses – and the possibility of an Iranian nuclear deal that could return up to 1 million barrels per day (bpd) to the market, and some analysts say the risks to oil prices are tilting lower.
“The balance of risk to the outlook is now largely to the downside,” Fitch Solutions Country Risk & Industry Research said in a report seen by rigging zone. Fitch Solutions maintained its Brent Crude forecast at $105 a barrel this year and an average of $100 a barrel next year.
Earlier last week, Fitch Solutions said that the outlook for the eurozone economy remains “worrying” despite strong GDP data for the second quarter.
“We continue to forecast growth of just 1.0% next year, assuming activity will lose considerable momentum during the second half of 2020 and the second half of 2012, likely to see the bloc as a whole flirt with the recession (approximately 50% chance),” Fitch Solutions, in an Aug. 15 report.
Economies with large manufacturing sectors that rely more on natural gas as a source of energy consumption, namely Germany and Italy, will experience modest recessions this winter, Fitch Solutions noted.
In addition, several banks, including Goldman Sachshave downgraded their outlook for China’s economic growth this year due to weaker-than-expected data for July and tight energy supply.
Earlier this month, Goldman Sachs also revised its Brent price forecast for this quarter. at $110 a barreldown from an earlier projection of $140 a barrel, but said he still believes the case for higher oil prices remains strong.
In recent weeks, oil prices have been hit by low trading liquidity and “a growing wall of concerns,” Goldman said in a note published by Bloomberg. Those concerns include recession fears, the launch of SPR in the US, the uptick in Russian crude oil production and China’s sudden COVID-related lockdowns, the bank’s strategists noted.
“We believe the case for higher oil prices remains strong, even assuming all of these negative shocks play out, and the market remains in a larger deficit than we expected in recent months,” the strategists said. Goldman Sachs.
While oil prices are currently in the grip of recession fears, OPEC remains bullish on fundamentals, including demand, in the near term. The International Energy Agency (IEA) also sees robust demand this year due to increased gas-to-oil switching in power generation and industry due to rising natural gas prices. In its latest report in August, the IEA increased its demand growth by 2022 forecast at 380,000 bpd.
Global oil demand remains strong and will remain so through the end of this year, OPEC Secretary-General Haitham al-Ghais told Reuters last week, noting that the recent oil sell-off does not reflect fundamentals. Y is driven by fear.
“We are still very optimistic about demand and very optimistic about demand for the rest of this year,” al-Ghais said. Reuters In an interview.
Going forward, recession fears will remain the main factors shaping oil price trends, but the EU embargo on Russian oil imports later this year and the end of the SPR release of the US in October could be the next bullish catalysts for oil.
By Tsvetana Paraskova for Oilprice.com
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