(Finance and Economics) International oil prices have rarely fallen sharply this year. Will they rise again?

  China News Agency, Beijing, July 3 (Liu Wenwen) With the continued tension in the geopolitical situation and the increasingly severe inflation situation, international oil prices have been running at a high level.

  However, oil prices have plummeted frequently in recent times.

In June, New York oil futures and Brent oil futures fell nearly 8% and 11%, respectively.

With the first monthly decline this year, will international oil prices rise again?

Oil prices fall due to multiple factors

  There are many reasons for the recent drop in oil prices: on the one hand, global central banks have tightened, investors are increasingly worried about a global economic recession, and the outlook for crude oil demand has weakened, putting downward pressure on oil prices; on the other hand, OPEC+ once again at the 30th ministerial meeting. Confirmed to maintain the previously announced production quota adjustment plan, decided to increase the daily crude oil production quota in August by 648,000 barrels, and restore the nominal oil production to the level before the epidemic.

  After the announcement of the increase in production, international oil prices fell.

  Amos Hochstein, a senior US energy security adviser, immediately said that the US hopes that OPEC+'s plan to increase production by 648,000 barrels per day in July and August is the "first step" of its supply policy, followed by a "second step".

  The U.S. is desperate for oil prices to cool as consumers suffer from soaring oil prices.

To this end, the United States has repeatedly released strategic crude oil to increase marginal supply and restrain oil prices from rising.

  Repeated epidemics and intensified inflation have disrupted the demand for crude oil. Now the demand for gasoline in the United States has shown signs of weakening, and the market outlook is hardly optimistic, leading to a decline in oil prices.

  On the Russian side, despite frequent sanctions, its oil production in June increased instead of decreasing.

  According to reports, Russian oil production in June increased by nearly 5% to 1.46 million tons per day (10.7 million barrels per day).

In addition, the current market has largely digested the impact of the Western oil ban on Russia, and concerns about oil supply have slowed down, further helping to cool down oil prices.

Supply crunch intensifies

  Although oil prices have fluctuated recently, in the long run, the continued tightness of crude oil supply should intensify.

  According to a study by Norwegian energy consultancy Rystad Energy, the total amount of recoverable oil in the world is now down 9% from last year, which could be a major blow to global energy security.

  According to Insights analysis, the total global recoverable oil is currently estimated at 1.572 trillion barrels, which is 152 billion barrels less than the total in 2021.

  The U.S. Energy Information Administration (EIA) also said that global crude oil excess capacity in May was less than half the 2021 average due to Western sanctions on Russia.

Non-OPEC spare capacity through May fell 80% year-on-year, with OPEC’s spare capacity falling to 3 million bpd from 5.4 million bpd a year earlier.

  “We need more oil to meet the growing demand for transportation, and any action to limit supply will soon have a detrimental impact on global gasoline prices,” said Per Magnus Nysveen, head of analytics at Rafael.

Will it rise again in the future?

  Although the recent short-term correction of oil prices has attracted a lot of attention, the rising trend of international oil prices since the beginning of this year cannot be ignored.

  In the first half of this year, the average price of WTI crude oil rose by US$39.30 per barrel compared with 2021, or about 63.17%; the average price of Brent crude oil rose by US$39.35 per barrel compared with 2021, or about 60.32%.

  Will international oil prices rise again in the future?

  Many institutions have analyzed that, in the medium and long term, international crude oil is still in a state of lack of supply elasticity, and oil prices will remain high for a period of time in the future.

  First of all, although OPEC+ announced an increase in production, many parties are skeptical about its ability to increase production because its main members Saudi Arabia and the United Arab Emirates are close to their production capacity.

  Secondly, the current supply chain bottleneck of shale oil in the United States limits the capacity of US crude oil to be put into production.

  Once again, under the current geopolitical situation, the uncertainty of Russian oil has intensified.

At present, the Group of Seven has agreed to set a price cap on Russian oil and gas imports, and is studying and finalizing a complex mechanism to limit the price of Russian oil, which may have a knock-on effect that will further push up oil prices.

  Jinlianchuang predicts that the price ceilings set by Western countries for Russian oil and gas and the turbulent political situation in some oil-producing countries may cause concerns about crude oil supply, thus keeping oil prices high and volatile.

  JPMorgan's view is that Russia has the ability to cut crude oil production by 5 million barrels per day without unduly hurting the economy.

For much of the rest of the world, however, the outcome could be disastrous: Global oil prices could hit $380 a barrel if U.S. and European sanctions prompt retaliatory production cuts by Russia.

(Finish)