The price of oil is falling. Causes and effects

European Brent oil quotes dropped below $ 100 after the publication of inflation data in the US.

The price of European benchmark oil Brent fell below the iconic $ 100 mark. This happened on July 13, just after news from Washington that the inflation rate in the United States had reached 9.1%. Experts do not expect such a high number.

Considering that on June 30, a barrel of Brent cost $ 116, and in the first week of March, against the background of the large-scale war between Russia and Ukraine, the price rose to $ 130, then a fairly obvious a downward trend emerged. In other words, the main energy carrier on the planet is becoming cheaper. And at least now.

Brent quotes fluctuate around the $ 100 mark in a week, and on July 13 they broke it for the third time (before that on July 6 and 12), increasing the likelihood of further declines. If only it could be a signal to speculators to intensify the game for the fall.

Of course, it is not excluded that the current decline will be only a temporary phenomenon and oil prices will rise again. So, in the first days of July, a huge resonance in the media was caused by the forecast of the American bank JPMorgan Chase.

Its experts calculate that the price of a barrel of Brent could rise to $ 190, and in the worst case even up to $ 380, if Moscow sharply reduces its exports in response to the West’s attempt to impose a cap. in Russian oil.

However, literally the next day, another popular American bank, Citigroup, made a completely different forecast: in the event of a global recession, the price of oil could drop to $ 65 by the end of this year and at $ 45 by the end of next. .

Moreover, it will happen, the study of bank analysts emphasizes, even under the conditions of the European embargo on Russia’s oil, which is more likely to contribute to rising prices.

The commodity market fears a recession due to the fight against inflation

Key word here: global recession. Fears of a new global economic crisis are growing in commodity markets. These fears, according to various Western experts and media, have been the main reason for the drop in prices – not only for oil, but also, for example, for copper.

Quotations of this non-ferrous metal, which are widely used in many industries, and therefore considered a very accurate indicator of the state of the economic situation, fell on July 13 to the lowest level in a year and a half.

Ironically, at first glance, the situation where the stock and commodity markets are simultaneously afraid of both rapid rise in prices and decisive measures against it.

In other words: excessive amounts of energy, especially oil and petroleum products such as gasoline, diesel, kerosene, often lead to a surge in inflation, to combat it, central banks need to be sharp to raise their base rates, this leads to an increase in the amount of loans to commercial banks, as a result of business reduces production, and the population – consumption, and there is a slowdown in economic growth , which could be a recession, a recession.

In other words, in an effort to curb inflation, central banks are threatening to curb the economy as well.

The new Fed rate hike has hit Europe

This development is what is worrying the markets today. Investors fear that with the highest inflation in the last four decades, the US Federal Reserve System (Fed) will have to respond with the toughest measures in the last three decades. Hence a stormy reaction to the publication on July 13 of US inflation data.

In fact, now the scenario is becoming more and more likely, where the Fed leadership at its next meeting on July 26 and 27 will again raise the rate immediately by 0.75 percent, as it did on June 15, and not yet produced since 1994.

There are serious fears that after such a drastic measure, the world’s largest U.S. economy will slide into recession, as credit funds for many business participants and consumers will become very expensive.

If a crisis breaks out in the US, it will accelerate the slowdown in Germany, where the United States is the main export market (with the exception of European Union countries as a whole). And if Europe’s largest German economy falls into recession, it will be difficult for the remaining EU members to avoid recession.

In turn, in a recession, oil consumption falls, especially since the devaluation of the European currency at a rate of 1: 1 against the US (largely a result of Fed policy) automatically leads to an increase in price of this energy. carriers sold for dollars for consumers in Europe. And, accordingly, with lowering demand for it.

Stopping the Nord Stream increases the likelihood of a recession in the EU

In this regard, it is very important that the suspension of Russian gas supplies through Nord Stream from July 11 due to ten days of planned preventive maintenance on this gas pipeline did not lead to an increase, but to a decrease in oil prices, although in the context of increased gas shortages, many industrial consumers are seeking to switch to other energy sources, mainly oil.