Volatility in oil market as prices ease to pre-war levels over concerns of a global recession and weak demand

The price of Brent crude oil traded around the $94-per-barrel mark on Monday amid a weakening demand outlook.

The price of Brent crude oil traded around the $94-per-barrel mark on Monday amid a weakening demand outlook.

Published Aug 10, 2022

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Volatility in the oil market continued to prevail on Monday as prices eased to pre-war levels during early trade over concerns of a global recession and weak demand, before slightly climbing back later in the day.

The price of Brent crude oil traded around the $94-per-barrel mark on Monday amid a weakening demand outlook, dipping further below the highest levels of $134 (R2222) per barrel reached at the height of the Russia/Ukraine war.

Economic data released over the weekend showed that China, the world’s top crude importer, imported 9.5 percent less oil in July than a year ago as refiners reduced inventories amid slower-than-expected demand recovery.

This followed US government figures last week, pointing to growing US crude inventories and declining gasoline demand.

However, oil prices had risen 1.2 percent to $96 by the time the domestic markets closed on Monday.

ActivTrades senior analyst Ricardo Evangelista said concerns regarding demand appeared to be fading away, following the publication of better-than-expected US employment data, and a surprising level of growth in Chinese exports.

Faced with the latest batch of data, Evangelista said oil traders decided that fears of a decline in consumption driven by a global economic slowdown were overblown, allowing for prices to bounce back from last week’s multi-month lows.

“However, the outlook for the global economy remains subdued, with many expecting a pronounced slowdown in activity as we approach the end of the year, so a question mark remains over how sustainable a rally in oil prices would be,” he said.

The elevated oil prices have driven rising global inflation, with prices of food and fuel soaring to record levels in the past five months.

Though oil prices have eased in the third quarter to date, they are markedly higher versus this time last year, which adds to inflationary pressure as inflation is measured year on year.

Investec chief economist Annabel Bishop said the Russian/Ukraine war had not ceased, and the impact on energy prices was still noticeable, elevating them over a year ago, even though they have fallen recently on global growth concerns.

“High inflation is still worrying markets, and the prospects for it to remain higher for longer than was initially expected, which is being signalled by key private sector, regulatory and multilaterals research houses and departments,” Bishop said.

But data on Monday showed that the US consumer inflation expectations for the year ahead fell to 6.2 percent in July, the lowest reading in five months from a record high of 6.8 percent in June.

Oxford Economics senior economist Tamara Basic Vasiljev said the global inflation pressures were easing but challenges remained.

“Our machine learning algorithms point to a turnaround in core inflation in Europe and Japan in the second half of this year,” she said.

“With the global economy headed into either a soft landing or a recession, energy prices should stay in check. The European energy crisis may prolong a waning in consumer prices, but it seems likely that the days of high inflation will soon be behind us.”

BUSINESS REPORT