Bearish sentiment gripped oil markets | OilPrice.com

Concerns about a recession in major oil-consuming markets have weighed on oil prices in recent weeks. Last week, oil fell to its lowest level in six months, a level last seen before the Russian invasion of Ukraine. The drop was due to concerns about economic growth in China, the world’s largest crude oil importer, as well as in Europe and the United States, amid high inflation and aggressive interest rate hikes.

The oil market turned bearish this summer on fears of slowing oil demand during a recession. Add to that the still resilient Russian supply – contrary to initial expectations of large losses – and the possibility of an Iranian nuclear deal that could return up to 1 million barrels per day (bpd) to the market, and some analysts say risks to oil prices are tilted to the downside.

“The balance of risks to the outlook is now broadly tilted to the downside,” Fitch Solutions Country Risk & Industry Research said in a report viewed by Rigzone. Fitch Solutions retained its Crude Brent forecast at $105 a barrel this year and an average of $100 a barrel next year.

Early last week, Fitch Solutions said that the outlook for the eurozone economy remains “worrying” despite strong GDP data for the second quarter.

“We continue to forecast growth at just 1.0% next year, assuming activity loses considerable momentum in H222 and H123, which will likely see the bloc as a whole flirt with recession ( approximately a 50%) probability,” Fitch Solutions said in an Aug. 15 report.

Economies with large manufacturing sectors that rely more on natural gas as a source of energy consumption, namely Germany and Italy, are expected to experience modest slowdowns this winter, Fitch Solutions noted.

In addition, several banks, including Goldman Sachshave downgraded their outlook for Chinese economic growth this year due to weaker-than-expected July data and tight energy supplies.

Earlier this month, Goldman Sachs also revised its Brent price forecast for this quarter. at $110 a barreldown from a previous projection of $140 a barrel, but said he still believed the case for higher oil prices remained strong.

In recent weeks, oil prices have been dragged lower by weak trade liquidity and “a rising wall of worry,” Goldman said in a note published by Bloomberg. Those worries include recession fears, the release of the SPR in the United States, the rebound in Russian crude oil production and instant COVID-related lockdowns in China, the bank’s strategists noted.

“We believe the case for higher oil prices remains strong, even assuming all of these negative shocks occur, with the market remaining in a bigger-than-expected deficit in recent months,” the strategists said. Goldman Sachs.

With oil prices currently in the throes of recession fears, OPEC remains bullish on fundamentals, including demand, in the near term. The International Energy Agency (IEA) is also seeing strong demand this year due to increased gas-to-oil switching in power generation and industry due to soaring natural gas prices. . In its last August report, the IEA increased its demand growth in 2022 forecast of 380,000 bpd.

Global oil demand is still robust and will remain so through the end of this year, OPEC Secretary General Haitham al-Ghais told Reuters last week, noting that recent oil selling does not reflect not the fundamentals and is driven by fear.

“We still feel very bullish on demand and very bullish on demand for the rest of this year,” al-Ghais said. Reuters in an interview.

Going forward, recession fears will remain the main determinants of the oil price trend, but the EU embargo on Russian oil imports later this year and the end of the US SPR release in October could be the next bullish catalysts for oil.

By Tsvetana Paraskova for Oilprice.com

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