Energy expert Dan Yergin said there are two reasons oil prices have fallen in the last month even though the market remains tight: the Federal Reserve and Russia’s war in Ukraine.
Oil prices have been on the rise since last year, jumping to high levels after Russia launched an unprovoked war on Ukraine. But since the end of May, Brent It fell from over $120 a barrel to last trading at around $109, or about 10% lower. West Texas Intermediate crude futures have fallen more than 9% in the same period.
Yergin, vice president of Standard & Poor’s Global, said the US Federal Reserve is choosing to pursue inflation even with the risk of the economy tilting into recession, and this “facilitates its path into oil prices.”
On Wednesday, Federal Reserve Chairman Jerome Powell He told lawmakers The central bank is determined to reduce inflation, although he acknowledged the possibility of a recession. He said a “soft landing” where policy is tightened without harsh economic conditions such as a recession will be difficult.
“The other side of that… is that Vladimir Putin has expanded the war from a battlefield war in Ukraine to an economic war in Europe, where he is trying to create hardships that will break the alliance,” Yergin said in an interview with Squawk Box Asia. CNBC. Friday.
Russia has limited gas supplies to Europe via the Nord Stream 1 pipeline and reduce flows to Italy. Moscow cut off gas supplies to FinlandAnd the Polandbulgaria, denmark ØrstedDutch company Gas and energy giant coincidence for him German Contractsthroughout the dispute paying gas for rubles.
These measures have raised fears of a difficult winter in Europe. Authorities in the region are now scrambling to fill underground storage with natural gas supplies.
Yergin said the demand outlook for China, the world’s largest oil consumer, is also uncertain.
China is slowly reopening parts of the country that were recently closed due to the sudden rise in Covid cases. unclear How quickly will Chinese companies be able to recover Among those restrictions on economic activity.
Many economists now expect a slow recovery in the future Because of more transferable variables, weaker growth, and fewer government incentives.
The extent of recovery and reopening will have an impact on oil demand, but this uncertainty is a “decade [oil] The price is so high.”
Earlier this month, OPEC+ agreed to increase production by 648,000 barrels per day in July, or 7% of global demand, and by the same amount in August. That’s higher than the initial plan to add 432,000 barrels per day per month over the three months to September.
“We believe that OPEC+ will then move to a more liberal approach and allow the few members with spare capacity to produce more,” Edward Gardner, commodities economist at Capital Economics, said in a note Thursday. He was commenting on OPEC+ policy after it finished unwinding supply cuts linked to the pandemic in September.
He said that this could cause Brent prices to fall to about $100 a barrel by the end of the year.
But markets should not assume that supply will recover in line with that policy.
Gardner said that while production quotas in OPEC+ members have been gradually relaxed, most have failed to increase production as quickly.
“Most of the other members don’t have the ability to ramp up production in the short term. If anything, we believe that some members, notably Angola and Nigeria, are likely to see production decline in the coming months, as years of underinvestment continue to hamper production. ,” he wrote.
CNBC’s Sam Meredith and Evelyn Cheng contributed to this report.