oil prices

Oil prices have fallen with Brent crude now trading below $90 while the WTI (West Texas Intermediate) is getting closer to $80 per barrel.

While there are still concerns over supply, interest rate hikes and growth concerns are now weighing heavy on sentiments.

Oil prices had spiked in March in the days following the Russian invasion of Ukraine. Commodities like copper and aluminum also surged on supply tightness. Russia is a major oil and commodity exporter and markets were worried that the Russian oil supply might get squeezed out due to the Western sanctions.

Russia indeed weaponized its energy exports but the impact is not as lethal as many had initially feared. To make things worse, global growth concerns are weighing heavy on oil prices.

Last week, global logistics giant FedEx, as well as the World Bank, warned of a global recession. The US dollar has also strengthened on rate hike fears – the yields on US 10-year Treasury have hit 3.5% on rate hike fears.

Commodities in general have a negative correlation with the greenback as a stronger US dollar makes them expensive in other currencies. We have a guide on how to trade commodities.

Rate Hikes Worries Pull Down Oil Prices

Rate hike worries are pulling down oil prices and oil demand is dependent on global economic growth – any slowdown in global growth is negative for oil prices.

As oil prices surged in the first half of 2022, energy stocks also soared.

Even Warren Buffett poured billions of dollars into buying Occidental Petroleum and Chevron shares and most analysts were bullish on the outlook of oil stocks. However, market sentiments have soured amid fears of aggressive rate hikes from the US Fed.

For its part, OPEC+ tried to support oil prices and announced a small production cut earlier this month. While markets expected the cartel to hold on to the current levels of production, it surprised markets with a 100,000-bpd production cut. Oil prices had then surged but soon came down.

UAE Might be Planning to Increase Energy Production

Bloomberg reported that UAE might be planning to increase its oil production.

In its response to Bloomberg, UAE’s state-owned oil company Adnoc said, “As we embrace the energy transition and future-proof our business, we will continue to explore potential opportunities that can further unlock value, free up capital and enhance returns.”

That said, the OPEC+ bloc assigns a production limit to its members and it remains to be seen how UAE manages to produce more than its quota. Oil prices meanwhile have been quite volatile in 2022.

However, some brokerages have a bearish view of oil. Citi previously said that oil prices would fall to $85 per barrel by the end of 2022. In its bear case scenario of a recession, it expects oil at $65 per barrel in 2022 and $45 per barrel in 2023.

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