Volatility never leaves the global oil market. Crude oil prices continue to be jittery - falling, stabilizing, rising and falling again. After OPEC+ decided a cut in supplies last week, price of crude oil went up. The cut was the biggest cut to its target production level since 2020.Goldman Sachs increased its 2022 price forecast for Brent crude from $99 to $104 per barrel as a result of OPEC+ decision to reduce output by 2 million bpd. While Morgan Stanley raised its price forecast to $100 for the first quarter of 2023
However, thecut by the oil cartel was termed as one of the ‘disruptive market forces’ that could push the global economy into recession as the cut will send prices higher. In its Oil Market Report published this week, IEA said that the move by OPEC+ has a multiplying disruptive impact on a world amid the worst global energy crisis. And amid higher interest rates and spiking inflation, higher prices will increase market volatility and energy security concerns.
And hence, the IEA has cut global oil demand not only for 2022 but also for 2023. IEA further highlighted the concern in its report that the current high prices would might not be able to increase the OPEC-expected investment and crude oil supply as it could possibly be met with further release of strategic reserves by the US.
Interestingly, the market and the US are viewing the supply cut by OPEC+ (that includes Russia) as a political move rather than what the cartel claims it to be; purely economic and technical. It has highlighted the volatility of the global economy, deteriorating of macroeconomic indicators, inflation as well as the bearish demand prospects despite winters around the corner due to new COVID restrictions in one of the largest consuming market- China as factors driving the cartel’s proactive approach to provide sustainability to the market.
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