If you look at the development of the oil price over the past three months, you can see parallels with the stock market in Germany.

The chart shows ups and downs.

"Yes, the market seems disoriented, but there are good reasons for that," says Maximilian Uleer, capital market strategist at Deutsche Bank Research.

And the reasons are to be found in the Covid-19 pandemic.

"OPEC members had extremely high spare capacity during the pandemic because production quotas were drastically reduced." The downside: "There was little incentive to invest in new production facilities," says Uleer.

Archibald Preuschat

Editor in Business

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And that is exactly what is happening to the oil-producing countries now.

"Production is at the limit, more is hardly possible," says Ludwig Kemper, raw materials expert at Berenberg.

The OPEC cartel has raised the production quotas back to the pre-corona level.

“But the additional production of 1.6 million barrels (1 barrel = 159 liters) per day by the core OPEC countries since the beginning of the year is only on paper.

Maybe plus/minus half has arrived on the market,” says Kemper.

Futures prices show how tense the supply situation is at the moment.

"Oil for delivery next month is currently $107, but for delivery next year it's only $89," Kemper said.

“OPEC+ will meet next week to decide September production levels.

So far, OPEC+ is well behind the intended oil production.

That's why I could imagine the production targets being raised again, even though the cuts from May 2020 have been reversed on paper," says Commerzbank commodity analyst Carsten Fritsch.

"State of the 80's"

“Individual countries like Saudi Arabia could still increase their production, but they are not very interested in it.

Otherwise the buffers that are needed when a well fails would melt away completely,” says Berenberg analyst Kemper.

An assessment that Uleer shares: "The members of the old OPEC are not the countries that bring us more oil." And Russia, which because of the sanctions of the European Union is currently selling its oil mainly to China and India , cannot expand its production much either, Uleer believes.

"It may be missing parts to maintain the Russian production facilities." A consequence of the sanctions against the country after its war of aggression against Ukraine.

Extremely low inventories are also a burden on the supply side, as Kemper explains: “The USA have significantly reduced their strategic reserves in recent months.

They are at the level of the 1980s.” Inventories are also extremely low in other respects, he adds.

And the US, as an oil-producing country itself, has not yet reached pre-pandemic levels in terms of production, according to Uleer.

"If you only look at the supply side, crude oil should be much more expensive," says the capital market strategist at Deutsche Bank Research.

How much more expensive, he leaves open.

Because as tense as the supply side is, there is a more relaxed situation on the demand side.

Berenberg raw materials specialist Kemper sees Europe in a recession at the end of this year, and then the USA next year.

An assessment shared by Uleer.

In addition, he is already expecting a technical recession in the USA.

The first estimate of economic growth in the second quarter will be released on Thursday.

Such a US downturn would be good for Europe, at least for oil prices.

Because weak economic performance dampens demand and thus the price.

Especially since oil is paid for in dollars and the euro is at its weakest against the US currency in two decades.

The geopolitical situation, on the other hand, has hardly any impact on the oil price.

“The risk premiums that were priced in in Ukraine at the beginning of the war are gone again.

The price of oil follows fundamentals,” says Uleer.

And according to the Beerenberg analyst, the war of nerves over Russian gas supplies to Europe has only a very limited impact on the oil price.

“The argument that oil replaces gas keeps coming up.

In practice, however, this is not so easy, and the conversion of the systems does not happen overnight.

In addition, the amount of additional oil for gas substitution is very small globally,” says Uleer.

He also sees the oil price not going through the roof, but at around 110 dollars per barrel at the end of the year and thus only slightly higher than today.