Crude oil prices are on pace for the worst month since November. Global growth expectations for 2022 are falling as OPEC+ continues restoring supply. Is more pain ahead for WTI? Get your market update from ddubrovskyFX here:
After 6 months of consecutive gains, WTI crude oil is on pace to weaken by over 9 percent this month. That would be the worst performance since November 2021 if it holds. In fact, on Wednesday the commodity closed at its lowest since early May. Is there more scope for energy prices to weaken ahead? Or will this translate into another bounce in the coming weeks?
Broadly speaking, WTI has been on an impressive rally that has its beginnings going back to when prices found a bottom in 2020. Then, a global pandemic destroyed travel demand, plunging oil prices to lows not seen in decades. Since then, recovery from a period of lockdowns, plentiful government stimulus and geopolitical tensions in Europe have worked in unison to bolster prices. Things are seemingly turning.
Some of the highest global inflation in decades has resulted in central banks around the world tightening monetary policy. To bring down rising prices, they must slow down growth by raising interest rates and ending government asset purchases. Unsurprisingly, real 2022 global growth estimates have been falling. On the chart below, growth is now seen at 3.2% y/y versus 4.5% expected back in late 2021.
This is a clear downside risk to oil amid rising recession concerns. Meanwhile, the Organization of the Petroleum and Exporting Countries and allies have been gradually restoring supply – see chart below. By August, the last of the production cuts made back in 2020 is expected to be rolled back. Barring an escalation of tensions between Russia and the West, it seems that the tide may be turning for crude oil.
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