Crude oil price drops ahead of OPEC + decision

The OPEC + countries will decide today on the volume of production oil. It may affect the quotations of the commodity, the prices of which are largely responsible for inflation and, consequently, for the actions of central banks.

A barrel of oil for $ 94

At the beginning of August, the price of a barrel of WTI crude oil fell to around USD 94, such levels we observed recently before Russia's invasion of Ukraine. Oil market volatility may remain relatively high ahead of today's decision OPEC +. The members of the cartel seem to leave production unchanged. There are two reasons for that. The first is that probably the producers do not have the spare capacity that would allow for a significant increase in production. Second, OPEC + members can see that the world is headed for a slowdown and recession. The demand for oil may fall, and then an increase in production would be unprofitable.

Despite the recent visit of US President Joe Biden to Saudi Arabia and OPEC's call to increase production and oil extraction, it seems that neither the Arab countries nor the other members of the cartel will be interested in this. Moreover, some countries have a problem with keeping the declared pace of production, let alone increasing it. Increasing the supply of raw material seems unlikely. Therefore, one of the possible scenarios is an attempt to stabilize prices in the range of USD 90-110 per barrel. This allows the producers to make up for it covid losses related to lockdowns, but also does not significantly inhibit demand.

Demand may rise

According to the report IEA agencies global oil demand in 2023 is expected to reach 101,6 million barrels per day, which would be a breach of pre-pandemic levels. According to the IEA, higher prices and weaker economic growth prospects may inhibit consumption, but the recovery of the Chinese economy after lockdowns may lead to an increase in demand next year with consumption growth forecasts from 1,8 million barrels per day in 2022 to 2,2 million barrels in 2023 Contrary to 2022, when OECD countries were leading the growth in oil demand, in 2023 80 percent. it is the non-OECD countries that are to increase demand, according to IEA data.