Macro analysis of the global oil markets to distill the evolving risks and opportunities for energy industry stakeholders and wealth managers.
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Crude softer early Thu but downward pressure abated for time being - Sept. 29, 2022
Demand worries weigh on crude as supply risks stay in blind spot - Sept. 16, 2022
Global economic and oil demand slowdown worries are firmly in the driver’s seat for the crude complex.
Intraday price fluctuations aside, Brent futures have flitted about in a relatively narrow band of $90-95/barrel for most of the past fortnight, with WTI hovering about $6 below.
But it feels like an uneasy equilibrium. The biggest challenge for the oil complex is dealing with two major variables on the demand front – assessing the magnitude of the global economic slowdown and its potential impact on oil consumption.
The World Bank this week said central banks risked sending the global economy into a “devastating” recession next year with their synchronous and hefty rate increases. An IMF spokesman said some countries would likely be in recession in 2023, but perhaps not the world. The Fund’s Managing Director Kristalina Georgieva said whether or not there is a recession in Europe, it will certainly feel like one this winter.
We see phrases like oil “demand destruction” and “demand erosion” floating around – but what is actually happening to consumption? To be sure, no one is predicting a contraction in global oil demand – not in 2023 and certainly not this year. It is still expected to grow annually, albeit at a slower pace than predicted before the Ukraine war.
That means the mounting and structural global oil supply risks – aside from those arising from the Western sanctions against Russia – while off the radar for the time being, could return to haunt the markets in 2023. They are not going to be banished by a commensurate contraction in demand!
