Oil prices are declining again this morning, having failed to pick up the good pace of the rebound hinted at by recent macroeconomic events. Prices retreated on news from China, which gave such high hopes to market participants during the last several weeks. According to the latest reports, forecasts about the rapid growth of the Chinese economy did not correspond to reality. Now we need to look for a new reason to rejoice, which is very difficult to do in the current difficult conditions.
Brent crude oil for May delivery fell 0.84% at $85.11 a barrel on the London ICE Futures Exchange. For now, the drop is very limited, since last week's build up is not allowing prices to fall any deeper.
The West Texas Intermediate (WTI) for April delivery fell by 0.89% to $78.97 a barrel on the New York Mercantile Exchange.
The negative would be caused, first of all, by news from China. The official data of the Chinese authorities reflected the not too rapid growth of the state's economy, as previously stated. This time, the enthusiastic forecasts of analysts did not justify themselves. According to the estimates of the Government of the People's Republic of China, economic growth for this year will not exceed 5%, which is too little for the oil market to strengthen and demonstrate a steady recovery.
In addition, the main indicators for the past 2022 underwent the same adjustment. In particular, the value of the state's GDP increased by 3%, and not by 5.5% as previously stated. Recall that China is one of the largest consumers of hydrocarbons in the world, and the entire balance in the market depends on its economic indicators. According to the current data, it is clear that the prospects for further increase in demand for oil have now become quite uncertain.
Among other things, market participants continue to closely monitor the monetary policy of the United States. The intentions of the Federal Reserve to raise the base interest rate are still there. This week should be marked by a report by the Fed chair, in which, as investors and experts expect, at least some more or less clear signals will be given about the further vector of monetary policy. And if an increase in the rate cannot be avoided, then I would like to have an idea to what extent this will be done. In the meantime, this situation causes only uncertainty of market participants in the future.
Most analysts are on the side of the fact that the Fed has not yet curtailed its policy of increasing rates. The reason is simple – high inflation risks, which simply do not give another way out of the situation. Moreover, a tight monetary policy can only make the risks of recession even greater, which will have a strong impact on the level of demand for crude oil, and hence on its value. It is also important that the growth of the key rate causes a positive effect on the national currency of America, which begins to strengthen and grow, and this, in turn, creates a restriction on demand not only in the oil sector, but also in other commodities.
Still, there is some positive news on the oil market. Today they are related to the forecasts presented regarding the future increase in the cost of crude oil in the current year. Namely, according to experts' assumptions, by the autumn of 2023, the price of petroleum products should climb above $100 per barrel. At the same time, rapid growth is expected in the near future, but oil will be able to strengthen at a high level only closer to the end of this year.
In general, the next year and a half, according to analysts, will be very promising for crude oil. China will continue to be the first driving factor. After abolishing most coronavirus restrictions, the country's economy will gain momentum, even if this has not happened in full yet, but all indicators point to this. In order for the country's industrial sector to reach its full production volume, more time is needed, so it will be better to fully assess the situation closer to the end of spring this year. At least now everything points to the fact that China's production facilities will experience overload.
A separate group of experts claims that a fairly strong reduction in the cost of crude oil will end very soon. A new era will come for oil, when prices will rapidly gain momentum. By December of this year, they will be able to cross the $140 mark per barrel. And in this case, again, all references are directed towards China. It is the demand from China that will have to act as a catalyst for growth.
Thus, 2023 may well be the year of Chinese oil demand. But there are still too many other limiting factors.
However, there are already some signals for an upswing. Thus, according to expert data, the largest exporter of petroleum products, Saudi Arabia, has already announced an increase in the cost of oil supplies since April for European and Asian markets. According to an official source, the Arab Light crude OSP supplied to Asia will increase by $2.5 in April this year. In comparison with the previous March figures, the growth was 50%.
Meanwhile, overseas news inspires some confidence. In particular, we are talking about statistics on the level of oil and gas drilling rigs in the United States of America. According to the news, their number decreased last week, which has not been for more than six months. The decrease over the past week was 4 units, now there are 749 units in the country. However, this figure is still far from the figures of last year, when they were 15% less. Particular attention should be paid to the fact that only oil production installations are being reduced, while gas ones, on the contrary, are growing. In particular, the first ones were reduced by 8 units, while the second ones increased by 3 units.
In general, the situation on the oil market is not too negative right now. There are a lot of postponed reasons for joy, which, however, do not impress market participants too much yet.
