Oil Prices Rose Last Week from Lowest Levels This Year

Last week, oil prices rose in global markets, recovering some of the losses from the previous week; however, a significant increase is hindered by the possibility of recession, and thus a weakening demand for ‘black gold’.

The price of a barrel in the London market rose by 3.9 percent last week, to $79.04, while in the American market, the barrel increased by 4.6 percent, to $74.29.

Last week’s increase is primarily attributed to a price correction, after having fallen more than 11 percent the week before, reaching the lowest levels this year. In the first three days of last week, prices rose, but in the latter part of the week, they again found themselves on a downward trajectory as central banks in Western countries continue to raise interest rates to curb inflation. This will slow economic growth, and thus demand for oil.

– Stricter monetary policy is already pressuring industrial activities. The possibility of further tightening after sharp comments from central bank officials has pressured market sentiment – analysts from ANZ Research noted in a memo.

After a series of increases of 0.75 percentage points, last week the U.S. Fed raised rates by 0.50 points, to a range of 4.25 to 4.50 percent, which is their highest level in the last 15 years. Additionally, estimates from central bank leaders indicate that rates will be raised to higher levels than expected and will remain at those levels longer than anticipated.

Due to the increase in interest rates, economic growth is slowing. The Fed estimates that U.S. GDP will grow by 0.5 percent next year, as it did this year, but leaders from several major U.S. banks have recently indicated that the economy could plunge into recession next year.

Last week, the European, Swiss, and British central banks also raised interest rates by 0.50 percentage points. From the regular meeting, leaders of the European Central Bank indicated that a further significant increase in rates will be necessary to curb inflation.

Although the risk of recession is rising, the International Energy Agency predicts a recovery in Chinese oil demand next year of nearly one million barrels per day, following a decline in 2022. As a result, the agency has raised its estimate for global oil demand growth in 2023 to 1.7 million barrels per day.

Analysts from J.P. Morgan Commodity Research expect that the U.S. will begin to replenish its strategic oil reserves in the first quarter of 2023, which should support the prices of ‘black gold’.