Saturday, March 2, 2024
 
 

Oil prices fall on signals Fed will start tapering stimulus measures

Slowdown of global economy leads to weaker oil price
EPA/ANN HEISENFELT/FILE PICTURE
The sun sets over an oil well in the Gulf of Mexico, US.

- Advertisement -

Oil prices fell to three-month lows this week due to the signal from the Federal Reserve that it will start tapering stimulus measures and a slowdown of the global economy.

“The catalyst for this week’s oil price fall is the signal from the Federal Reserve that it will start tapering stimulus measures. That resulted in a rally in the US dollar, and this always has a counter-effect on the oil price,” Chris Weafer, co-founder of Macro-Advisory in Moscow, told New Europe on August 20.

“The Fed has been giving some signals since early August, hence we have seen Brent crude slide from a closing high of over $76 per barrel (set on July 30th) to Friday’s level of $65 per barrel,” he added.

According to Weafer, the dollar rally comes against a backdrop where the Organization of Petroleum Exporting Countries (OPEC) and it allies led by Russia, a group known as OPEC+, has agreed to add an additional 400,000 barrels per day to supply and concerns are growing about the economic impact of the latest rise in Covid infections around the world. “So, what was looking like a very favorable supply-demand balance in early summer is now looking like it is shifting to a possible supply surplus,” Weafer said.

“But one also needs to bear in mind that the price of Brent has rallied from under $52 per barrel at the start of this year. So the steepness of the recent price decline is almost certainly linked to some traders locking in profits in what is traditionally a quiet trading month,” the Macro-Advisory co-founder said.

According to Weafer, the key for the price in September, when traders start to look at expected trends for the next year, and to year end will be economic data and trend expectations in major economies. “If growth continues to pick up, then so too will oil demand and the price of oil will rally to $80 per barrel. If the recent spike in Covid infections leads to further lockdowns in major economies, then oil demand will fall, or not rise as fast as expected, and we could see Brent back into the $50s per barrel,” he said.

Russia best placed amongst OPEC+ countries

Asked about the impact of low oil prices on Moscow, Weafer said Russia is best placed amongst the OPEC+ countries. He noted that it has the lowest budget breakeven price requirement at under $50 per barrel and has been reporting a budget surplus for the past five straight months. As a result, its financial reserves are at a record high while total national debt is less than 18% of GDP.

“Russia’s other advantage is that it has a flexible currency while OPEC countries typically have their currencies tied to the US dollar. It means that the ruble weakens when oil falls – as it has done again this week – and that provides budget (ruble) revenue protection,” Weafer said, adding that Moscow will be a lot more relaxed about this price slide than will governments in Riyadh, Abu Dhabi and in other OPEC+ states.

Meanwhile, Justin Urquhart Stewart, co-founder of UK regional investment platform Regionally in London, told New Europe by phone on August 20 a combination of global issues from the Fed tapering issues, even Afghanistan led to the recent drop in oil prices. “The wind has gone out of the sails of the global economy and you can feel the ship lurch more slowly and losing momentum and to me that means I’d be a seller of oil at the moment,” Urquhart Stewart said.

“Take the Fed with tapering concern, take China with its concern and the definite slowdown we’re seeing there, even take the negative attitude about what’s happening in Afghanistan and the potential future political disturbance, you have three very good reasons there why people would be holding back on investments at the moment and expenditure and therefore the previous positive enthusiasm we’ve been seeing in the global economy will be losing its momentum for those reasons. Therefore it doesn’t surprise me you got a weaker oil price and it will get weaker still,” Urquhart Stewart said, adding, “The trend is still low and I think that’s going to continue. The wind has just come out of the sails of the global economy and I could see that the ship is decisively going slower”.

follow on twitter @energyinsider

- Advertisement -

Subscribe to our newsletter

Co-founder / Director of Energy & Climate Policy and Security at NE Global Media

Latest

EU Parliament strives to protect energy market from manipulation

Responding to the energy crisis exacerbated by Russia's invasion...

Russia sanctions remain a powerful tool to support Ukraine’s defense

Western leaders should not dismiss the two-year long sanctions...

New U.S. Russia sanctions widen scope, adding 500 new targets

The U.S. State Department released a comprehensive list of...

Don't miss

EU Parliament strives to protect energy market from manipulation

Responding to the energy crisis exacerbated by Russia's invasion...

Russia sanctions remain a powerful tool to support Ukraine’s defense

Western leaders should not dismiss the two-year long sanctions...

New U.S. Russia sanctions widen scope, adding 500 new targets

The U.S. State Department released a comprehensive list of...

US Democrats overseas to hold primaries in early March

  In an election year where most U.S. voters are...

EU Parliament strives to protect energy market from manipulation

Responding to the energy crisis exacerbated by Russia's invasion of Ukraine, the European Parliament approved on February 29 legislation to tackle energy market manipulation...

Russia sanctions remain a powerful tool to support Ukraine’s defense

Western leaders should not dismiss the two-year long sanctions campaign (as opposed to the 2014 Crimea sanctions) as unsuccessful simply because the Kremlin has...

New U.S. Russia sanctions widen scope, adding 500 new targets

The U.S. State Department released a comprehensive list of new sanctions measures on February 23, clearly the culmination of months of preparation in order...

US Democrats overseas to hold primaries in early March

  In an election year where most U.S. voters are already sure they will witness a Biden-Trump rematch, few voters residing abroad see the need...

Chosen to host COP29, Azerbaijan draws special attention to its energy policy

Azerbaijan’s Energy Minister Parviz Shahbazov visited the U.S. this week where he held talks with World Bank representatives, U.S. government officials and investors, discussing...

Moldova’s 2024 elections: Why it matters

Since the war in Ukraine commenced, the neighboring Republic of Moldova, led by President Maia Sandu, has strongly supported Kyiv. As the tiny, landlocked...

Washington strongly condemns Houthi attacks on shipping

The U.S. State Department issued a strongly worded condemnation of Houthi attacks on international shipping on February 21st, equating many Houthi attacks with piracy.Washington...

Alexandroupolis LNG Terminal going live after test runs

The Gastrade consortium confirmed on February 18 the long anticipated Liquified Natural Gas (LNG) terminal at Alexandroupolis in Greece’s province of Thrace has received...