The turmoil in the stock market this week spilled over into oil prices. The price of a barrel of North Sea oil fell to $72, the lowest price level since December 2021. With a decline of about 12 percent, oil prices recorded their biggest weekly drop in three months.
Major German bank Commerzbank believes that the decline is excessive and driven by speculative investors. It notes that the supply of oil in the market is higher than it was just a few months ago, and that both the International Energy Agency and OPEC revised their estimates for supplies from Russia this week. But things will change this summer.
Tracks increase in the second half of the year
Thanks to the marked increase in demand, Commerzbank expects the oil market to experience a deficit in the second half of the year.
First, Saudi Energy Minister Abdulaziz bin Salman Al Saud confirmed that his country will abide by OPEC production quotas until the end of the year. Analysts believe he recently met with Russian Deputy Prime Minister Alexander Novak, and may have discussed ways to stabilize the price.
Demand from China is also expected to pick up gradually. Last but not least, the current oil price has reached a level that may prompt the authorities in the United States to replenish its strategic oil reserves, which have fallen to their lowest level in 40 years.
This will support the price of oil without the intervention of OPEC and partner countries. Although many indicators suggest that oil prices will start to rise again, sentiment in the broader financial market will continue to determine the direction of oil prices in the short term, according to Commerzbank.
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