February 4, 2023

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The energy analyst points to three factors that keep oil prices below $80 a barrel

The energy analyst points to three factors that keep oil prices below $80 a barrel

The price of a barrel of North Sea burning oil fell on Tuesday afternoon to below $80 a barrel. The last time North Sea oil was priced this low was on January 6, 2022.

At the price of 19.40 barrels of North Sea Flared oil, it traded at $78.7 per barrel.

The oil market was affected by fears that global growth is slowing and that it is eroding demand, according to what he said The Wall Street Journal. Early oil market gains on Monday, triggered by the easing of Covid restrictions in China and the imposition of a cap on Russian oil prices, quickly faded.

Nadia Wiggin, an energy analyst and partner at Pareto Securities, says the decline in oil prices is due to three factors. The first is the reduced flow of money into the oil market.

– We have the lowest open interest since 2015. This also means that reactions in the oil market become more vicious when there is news, says Wiggin.

Open interest is a measure of cash flow in futures and options.

Fear of rising interest rates

She also adds that strong personalities are from the United States yesterday Helps lower prices.

A strong economy is usually a good sign, but these days with a more pessimistic view of the market, investors are reacting more negatively because they know that this increases the chance that the US central bank will raise interest rates further and that they will remain high for a long time, says Wig.

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She adds that the third reason is that both Kuwait and Saudi Arabia indicate that demand for crude oil will not increase in Asia in January. Meanwhile, Saudi Arabia cut prices for Asia by more than $2 a barrel on Tuesday morning.

I think China was waiting for a Russian cap for a discount

At the end of the week, the European Union introduced a cap on the price of oil from Russia. The price cap actually came into effect on Monday, in parallel with the EU embargo which includes banning sea freight imports of Russian oil.

The three countries, Poland, Estonia and Lithuania, managed to lower the price ceiling from the original proposal of $65-$70 per barrel. Then $62 was discussed, before $60 was put on the table. Despite Poland’s initial skepticism, the country withdrew its protest against the proposal on Friday.

Oil prices are very much dependent on China going forward, Weijin says.

– We believe that prices will rise again, especially after the Chinese New Year, when the market sees signs of an increase in China’s imports of crude oil. Until then, there is a lot of speculation about when China will end its current anti-coronavirus guidelines. China is the largest importer of oil in the world, so it is in their interest to buy oil cheaply. We think they were waiting for EU sanctions against Russian oil so they can get a discount for Russian oil, says Wiggin.

Expect prices above $100 a barrel

Wejn is not afraid that oil prices will remain low for a long time.

– We must not become too pessimistic now that Brent has averaged $100 per barrel for large parts of the year, while the biggest growth engine for oil demand – China – has shown negative year-on-year demand growth. That didn’t happen, says Wiggin, even during the financial crisis.

She adds that if prices fall too much, OPEC+ is likely to increase production cuts.

Next year, you expect prices to rise above $100 a barrel, and you think that will actually happen in the first half of 2023. Beyond that, it will be important to follow the tanker market – which you believe will provide the best clue as to what China is planning in the future.(Conditions)Copyright Dagens Næringsliv AS and/or our suppliers. We’d like you to share our statuses using links that lead directly to our pages. Reproduction or other use of all or part of the Content may be made only with written permission or as permitted by law. For additional terms look here.

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