Although the fall is less spectacular than that of natural gas, the fact remains that the price of a barrel of oil has lost some 36% of their value since their high of the year reached in March, a few days after the invasion of Ukraine by Russia.
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On Friday, the price of a barrel of Brent was rising, around 80 dollars, after falling below 78 dollars. (see graphic)a level that we had not seen since December 2021. The American benchmark, the barrel of WTI, also progressed close to 75 dollars, after falling during the week below 67 dollars.
Prices recovered on Thursday due to a drop in weekly inventories of oil and refined products (gasoline, diesel, heating oil) in the United States that were greater than expected. They were also supported by the closure of an oil pipeline from the American Colonial Pipeline network due to the detection of a leak. However, the restart is scheduled for this Saturday.
As for the outlook, investors seem to have opted since the end of the year for sluggish demand. Thus, in December, theETC on Brent from Wisdom Treerecorded an inflow of $1 billion. “This is a monthly record high since its launch in February 2012, a sign that investors believe the price of Brent has bottomed out”comments Tom Eckett, at ETF Stream.
A simultaneous economic downturn
However, prices could still fall in view of the global economic situation. The new year will be harder than the year we are leaving behind (…) Why? Because the three main economies – the United States, the European Union and China – are all slowing down simultaneously », warned this week Kristalina Georgieva, the managing director of the International Monetary Fund (IMF). In addition, central banks will continue to tighten their monetary policy. Even if the pace should be slower, the Fed and the ECB will continue to raise their rates to reduce inflation, ultimately aiming for a target of 2%. In the euro zone, the rise in prices reached 9.2% in December over one year, according to data published by Eurostat on Friday. This is better than in November, when it was displayed at 10.2%, but it is still high.
The other unknown is China. The authorities abandoned overnight in December the “zero Covid” policy that they had applied since the start of the pandemic, a policy that was increasingly poorly supported by the population, and which hampered the growth of the giant. Asia, which should stand at just 2.7% in 2022, according to the World Bank. By deciding to open its borders, China is however exposing itself to an explosion of cases, by letting the virus circulate, in particular its variants. “The lack of reliable data does not help the situation, but with the rapid spread of Covid throughout the country, it is likely that there will be disruptions which will hamper economic activity and demand”comments Craig Erlam, analyst at OANDA.
The unknown of Chinese oil demand
Chinese oil needs had already fallen in 2022, to 15 million barrels per day (mb/d), a decline of 2.7% compared to 2021, according to estimates by the International Energy Agency ( OUCH). For 2023, the agency forecast a 5.5% increase in 2023, to 15.83 mbd, an estimate made before the announcement of the end of the “zero Covid” policy. A factor that makes the situation of the Chinese economy different from those of the United States and the European Union. “We can expect a sharp rebound in demand (Household), but the total effect on Chinese GDP will be much less”comments Bruno Cavalier, Chief Economist at Oddo BHF. “The weakness of the Chinese economy is not limited to the zero-Covid policy, which is in fact only an aggravating factor. The most profound change of the last two years comes from the setbacks of the real estate sector”he explains.
Another factor influencing the price of black gold: the OPEC+ policy. Last October, against all expectations, the partnership led de facto by Saudi Arabia and Russia had no hesitation in reducing their quota by 2 mb/d from November (actually 1 mb/d, some member countries failing to produce their quota), infuriating the Biden administration. The next meeting is scheduled to be held on February 1. Without saying it officially, the OPEC+ partners are satisfied with a price per barrel of 80 dollars. However, since December 5, the OPEC basket (average crude oil prices of member countries) has regularly fallen below this bar. (see graphic).
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According to oil market participants quoted by Bloomberg, Aramco, Saudi Arabia’s state-owned oil company, has already lowered the price of its crude for its customers in Asia and Europe. A sign that the oil giant expects a drop in demand, and secures its market share.
