Oil prices on the world markets rose last week, but throughout July they fell for the second month in a row, because the slowdown in the growth of the world economy could lead to a weakening of the demand for energy products.
The price of a barrel on the London market increased last week by 0.7 percent to $103.97, while on the American barrel it rose 4.1 percent to $98.62.
Despite this, in July the price of a barrel on the London market dropped by around four percent, and on the American market by almost seven percent.
Price support, especially in the United States of America (USA), was provided by data that crude oil stocks in that country fell by 4.5 million barrels, while demand for gasoline in the USA increased by 8.5 percent. Prices were also supported by the weakening of the dollar, because that is not how oil becomes cheaper for customers using other currencies.
On the other hand, oil prices were negatively affected by the Baker Hughes report on the growth of active oil installations in the US for the 23rd month in a row. Namely, in July, the number of these plants increased by 11. Prices are also negatively affected by the weakening of the world’s largest economies.
Last week, it was reported that US gross domestic product (GDP) slipped 0.9 percent on an annualized basis in the second quarter, for the second quarter in a row, while analysts had expected a slight increase. Although some believe that it is not a recession, because not all economic segments have fallen, and the labor market is still strong, the fact is that GDP has fallen for two quarters in a row on a quarterly basis, which, by the usual definition, represents a recession.
Regardless of whether it is a recession or a slowdown in economic growth, the demand for energy could fall. The growth of the Chinese economy, the largest importer of oil in the world, has also slowed down.
In addition, the US central bank, the Federal Reserve (Fed), aggressively increased key interest rates by 0.75 percentage points last week due to high inflation, for the second month in a row, which will further slow down the growth of the world’s largest economy. And while oil prices are under pressure due to the potential weakening of demand, they are supported by the weakness of supply.
That is why traders will be focusing on the meeting of the Organization of the Petroleum Exporting Countries (OPEC) and its partners led by Russia this week. It is expected that a possible slight increase in production will be discussed, but it is difficult to say whether it will happen, because some members of that organization are unable to meet the existing quotas anyway due to outdated capacities and other reasons.
After a strong jump at the beginning of the year due to the Russian invasion of Ukraine and Western sanctions against Russia, oil prices have fallen in the last two months. Therefore, according to a Reuters survey, analysts expect the average price of a barrel this year on the London market to be $105.75, and on the American market to be $101.28.
After rising by more than 50 percent last year, thanks to the recovery of the world economy from the corona crisis, since the beginning of this year, oil prices have jumped by about 40 percent, mostly due to the war in Ukraine.