What’s Behind Oil’s Price Movements?

After a tumultuous 2022, the outlook for one of the world’s most important fossil fuels is looking uncertain as we move further into the new year. Commodities markets are seeing price shifts ahead of important government decisions amid strong economic headwinds.

Monday’s Oil Price Drop

The trading week opened with a 0.1% drop in the price of Crude Oil (CL) and a corresponding 1% fall in the value of international benchmark Brent Oil (EB). Petrol bulls may be disappointed by today’s Oil market trends, as heady predictions for the recovery of global demand had been made following the easing of many COVID-19 restrictions in the world’s second-largest economy.

China has recently moved away from its controversial ‘Zero COVID’ policy, which had led the nation’s authorities to impose periodic lockdowns on some of the country’s economic centres, pushing down demand for black gold. The Chinese economy seems to be quickly recovering from its nearly three years of isolation, but markets may need to wait until we move farther past the recent Chinese New Year holidays to see a full recovery in demand from the country’s producers and consumers. (Source:Bloomberg)

A further factor that may be putting downward pressure on Oil prices Monday may have been exports of Russian Oil reaching higher than expected levels. European Union bans on EU-registered seaborne vessels transporting Russian-sourced petroleum products are expected to come into effect on February 5th. With ships moving to get the goods to market ahead of sanctions, supply of Russian petroleum products may have been higher than expected as the trading week opened.

OPEC+ and Fed Summits Ahead

Oil traders the world over may have their eyes on several important summits set to take place this week that could have an outsized effect on price shifts in the coming days. A panel of ministers from OPEC+ countries is set to hold a virtual meeting on Wednesday, February 1st.

While this panel, known as the Joint Ministerial Monitoring Committee (JMMC), does not have the power to make decisions regarding Oil output for the 23-nation producer cartel, it can call for a full OPEC+ meeting should it see fit.  

According to many analysts, it seems unlikely that Wednesday’s meeting will conclude with any recommendations for changes to the current output policy. At least until recently, major figures in the OPEC+ policy-making apparatus may have been expecting a large rebound in demand for black gold in 2023, according to some reports. Whether this calculus will change ahead of the cartel’s next full summit in June remains to be seen. (Source:Reuters)

While OPEC+ doesn’t seem likely to be shifting course in the near future, many are expecting the Federal Reserve to opt for a 25 basis point interest rate hike on Wednesday, as opposed to the 50 basis point rise seen after the U.S. central bank’s previous summit. This could possibly boost petrol prices, as fears had repeatedly been raised that overzealous interest rate hikes could push the global economy into recession, with the corresponding knock-on effects for global petroleum demand.

A confluence of several diverse factors is likely to affect the near-term trajectory of petroleum prices. Whether global Oil markets will reach stability as we move further into 2023 remains to be seen.