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Crude oil the cheapest in six months

Crude oil the cheapest in six months

created Daniel KosteckiAugust 16 2022

Price oil WTI dropped below USD 90 per barrel, reaching the level before Russia attacked Ukraine. Today, oil is the cheapest in six months.

Concerns about recession drive down the oil price

It seems that for the crude oil market, the topic of global economic slowdown or recession and how long these phenomena may last may be important. Both the economic data from China and the United States seem to show a weaker condition of both economies and thus may affect the decline in demand for oil. This, in turn, may exert pressure on lower prices. According to published data, in July the activity of factories in China decreased so much that it forced the local central bank to lower interest rates on loans to prevent demand from collapsing. In turn, in the United States, the market may have been surprised by the second largest decline in the history of the New York Empire State production index. The above indicators may affect the market from the demand side, but this is only one part of the puzzle.

Saudi Arabia Will Increase Production?

On the supply side, long-awaited changes may come. After the embargo is lifted, Iranian oil may start flowing back into the market. Iran responded to the European Union's proposal. It may seek to re-implement the 2015 nuclear deal. The EU also urges the US to be more flexible in its implementation. Saudi Arabia may also be getting ready to increase the supply of oil. The president of Saudi Aramco, the state-owned oil giant, said over the weekend that his company was ready to increase production to 12 million barrels per day, the company's current capacity cap. All that is needed to increase production is the decision of the Saudi Arabian government.

According to the agency's forecast EIA The United States can also increase its production. US crude oil production in the August forecast averages 11,9 million barrels a day (b / d) in 2022. In 2023, it may increase to 12,7 million barrels / d. If this forecast comes true, the US may set a production record next year. The current one is 12,3 million b / d and was established in 2019.

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About the Author
Daniel Kostecki
Chief Analyst of CMC Markets Polska. Privately on the capital market since 2007, and on the Forex market since 2010.