The price of oil fell to a minimum since January amid rising risks of a global recession

The price of Brent crude fell to its lowest level since January 2022, according to data from the ICE exchange.

November Brent futures fell 5% to $85.5 per barrel on September 23, according to the exchange. The last time such a price was fixed on January 25, 2022. November futures for WTI crude fell 6% to $78.2 per barrel, which is also the lowest value since January this year. By 18:11 Moscow time, oil prices recovered somewhat: Brent to $86.2 per barrel, WTI to $78.8 per barrel.

Oil quotes have been actively declining since the end of August, when the price of Brent exceeded $102 per barrel.

Analysts attribute the current drop in oil prices to the tightening of monetary policy by the world’s leading central banks, especially the US Federal Reserve. This increases the risks of a recession in the global economy and, as a result, leads to a decrease in oil demand.

Finam analyst Alexander Potavin notes that the fall in oil prices has been going on for four months in a row: from summer highs of $125 per barrel. Quotes have fallen by 30%. The expert recalls that this week, in addition to the Fed, the central banks of Great Britain, Switzerland, Norway, Indonesia, the Philippines, Hong Kong, South Africa and Taiwan significantly raised key rates.

Commodity market analystOpening Investments Oksana Lukicheva notes that the regulators of the leading countries in their forecasts announced the onset of a recession. “A simultaneous increase in the cost of credit resources creates the threat of a recession in the economy, and hence a decrease in demand for oil,” Potavin notes.

The most painful was the increase in the Fed’s interest rate by 75 basis points at once and the regulator’s promise to continue the cycle of tightening policy in the current and next years to fight inflation, says Veles Capital analyst Elena Kozhukhova. Against this background, the dollar jumped to more than 20-year peaks, putting additional pressure on commodity prices, she said. “At the same time, a recession, if it is deep, will a priori lead to a decrease in consumption, and this will have an impact on the fundamental state of the market,” Lukicheva points out.

According to Potavin, with such price dynamics, OPEC + will almost certainly reduce its production in early October, citing a reduction in real demand for raw materials. He recalls that in August the OPEC+ countries reduced oil production by 50,000 barrels per day compared to July to 38.73 million barrels per day, that is, the gap from the production plan was 3.37 million barrels per day.

Lukicheva also believes that in the event of a prolonged fall in prices, OPEC + may adjust the production program. She notes that the G7 initiative to cap the price of Russian oil is now facing difficulties in reaching agreements and implementation. In her opinion, the price of oil may return to the level of $100 per barrel. in the event that the market returns to a deficit state due to a drop in production by OPEC countries and independent producers, for example, the United States. “The second scenario that could help prices recover would be to stop tightening the US Fed’s policy or return to its easing,” she notes.

At the same time, Lukicheva admits that prices may drop to $70-80 per barrel. But by the end of the year, the cost of oil may again rise above $90 per barrel due to possible disruptions in supplies. Kozhukhova does not exclude that the price may fall to $70 per barrel, and in more negative scenarios, return to the region of $50 per barrel. – a minimum since January 2021. In her opinion, a turnaround in the oil market will require a change in significant fundamental factors, for example, the return of OPEC + to a strategy to reduce oil production or an improvement in the prospects for the global economy, and the oil embargo factor against Russian oil is updated only in December . According to Potavin, the topic of an embargo on Russian oil will manifest itself already in October, but for now it is not included in market prices.

Personal Broker “BCS The world of investment” Maxim Klochkov notes that, according to the estimates of a number of leading US banks, oil should recover in the fourth quarter due to low reserves and strong demand. “This could help the price recover despite growing fears of a global recession,” he notes. The expert adds that, for example, JPMorgan predicts the cost of Brent over the last three months of 2022 at $101 per barrel.

Potavin points out that due to the introduction of a limit on oil prices, Russia may simply refuse to export oil at imposed low prices for some time, even to the detriment of its own income. In this case, an explosive rise in prices may occur on the world oil market – Brent quotes may soar at the end of the year to $120 per barrel.

On September 2, the G7 countries (USA, UK, Canada, Japan, Italy, France and Germany) and the European Union (EU) announced plans to introduce a ceiling on prices for Russian oil. It is assumed that the price limit for Russian oil will be set by December 5.

The EU countries have not yet agreed on the introduction of a ceiling on oil prices from Russia. According to Bloomberg, they intend to agree on the introduction of a cap on the cost of Russian oil within a few weeks. The EU may include this measure in the eighth sanctions package, the Financial Times wrote.

Russian President Vladimir Putin on September 7, during a speech at the Eastern Economic Forum, said that the G7 decision would lead to a further increase in energy prices in Europe and the countries that make this decision. He noted that Russian companies would not supply oil and other energy resources on imposed and unfavorable terms.

Against this background, analysts predict an increase in the cost of oil on the world market to $130-150 per barrel. (Vedomosti wrote about this on September 19). And JPMorgan experts even allowed the growth of quotations to $380 per barrel. Simultaneously with the decision on the price limit for Russian oil, the G7 countries called on the oil-producing states to increase production. But the OPEC+ countries, on the contrary, in early September decided for the first time since 2020 to reduce the quota for oil production in October 2022 by 100,000 barrels. per day. Thus, the OPEC+ countries will return to the level of production set for August 2022.