Oil Prices Rose Last Week as OPEC May Cut Production

Although the slowdown in economic growth signals a weakening demand for energy, oil prices rose last week in global markets as OPEC may cut production to balance supply and demand.

The price of a barrel on the London market rose by 4.4 percent last week to $100.99, while on the American market, a barrel increased by 2.5 percent to $93.06.

Support for prices came from messages from Saudi Arabia that leading producers might reduce supply to balance the market and neutralize the return of Iranian oil to the market in the event of an agreement on the nuclear program.

Other OPEC producers, including the United Arab Emirates, also support Riyadh’s thinking on oil markets.

– There is an impression that Saudi Arabia is not willing to tolerate a drop in oil prices below $90. Speculators might interpret this as a call to bet on further price increases and not fear a significant drop in prices again – analysts from Commerzbank wrote in a review of the market situation.

Support for prices was also provided by a decline in crude oil and derivative stocks in the U.S. last week.

On the other hand, negotiations regarding the Iranian nuclear program weigh on prices. An agreement would open the door for the return of sanctioned Iranian oil to the market, which would mean an increase in supply in conditions where demand is weakening.

Due to extremely high inflation, central banks in Western countries have been raising interest rates for months, which will slow economic growth and thus demand for energy.

To curb the highest inflation in over 40 years, the U.S. central bank has raised rates by 2.25 percentage points since March, and it is clear that they will raise them again in September. The only question is by how much, 0.50 or 0.75 percentage points.

On Friday, Fed Chairman Jerome Powell stated at a central bankers’ conference in Jackson Hole that the economy needs a tight monetary policy for some time to bring inflation under control.

And that, he said, means slower economic growth, a weaker labor market, and ‘some pain’ for citizens and companies.

The European Central Bank also indicates that it will soon aggressively raise interest rates further, despite a possible recession, as inflation in the eurozone is at record levels.

Additionally, a strong dollar negatively impacts prices as it makes oil more expensive for buyers in other currencies.

The dollar index, which shows the movement of the value of the U.S. dollar against the other six major world currencies, strengthened by 0.7 percent last week to around 108.78 points, close to the highest level in 20 years of 109.29 points.

After rising more than 50 percent last year, thanks to the recovery of the global economy from the coronavirus crisis, oil prices have risen more than 25 percent since the beginning of this year, primarily due to the war in Ukraine.