forex blog

Recession fears fuel oil price drop 

  • Oil market bearish  
  • Prices reflect fears of a slowdown in China, the USA, and Europe.  
  • OPEC remains upbeat on global economic growth  
  • The volatile oil market is good for traders  

   Recession Fears Fuel Oil Price Drop 

The start of 2022 saw the price of oil surge beyond $120 a barrel, delivering oil companies their biggest profits in years.  

By September 2022, however, fortunes have changed, and the oil price is facing a three-week decline.  

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Down $30 a barrel  

Oil prices have declined by about $30 a barrel since a peak in early June. The decline reflects the US Federal Reserve and major central banks implementing aggressive interest rate hikes to combat high inflation.   

The tightening monetary policy will slow economic growth and it’s expected that the US and Britain will enter a recession. All this translates to lower demand for global oil demand growth.   

Growth despite recession fears  

Interestingly, OPEC and the International Energy Agency (IEA), expect growth in global oil demand for the remainder of 2022 and beyond. OPEC has even said that demand could outpace pre-COVID levels in 2023.  

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This is at odds with the current oil market experiencing bearish signals; Prices reflect fears of an economic slowdown in China, and a recession in Europe and the USA.   

Despite superb employment figures, the US is experiencing the dual problem of runaway inflation and high-interest rates. If it continues this path, an economic slowdown will lead to a recession.   

The EU and the UK are expected to enter recession later this year, reports Fitch Ratings. Global economic growth is now expected at just 1.7% in 2023, a drop of 1%.   

 OPEC still upbeat  

OPEC remains upbeat on global economic growth, stating that demand for trade will continue. The organisation said that growth is set to remain at 3.1% in 2022 and another 3.1% next year, reports OPEC.   

 The organisation believes that a healthy demand will remain despite market fears of recession.   

 The IEA, however, cut its global oil demand growth estimate by 110,000 bpd to 2 million bpd for 2022.   

 Oil supply in the short term will be uncertain as demand remains volatile.   

Traders can cash in on volatility  

   

Volatility might be bad for oil analysts but it’s a trader’s best friend; volatility creates opportunity. A change in the outlook for oil futures could create the same huge upswings we’ve seen at the start of 2022.  

So, take advantage of the volatile oil industry today!   

Invest in oil  

  

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