For about two months, signals from the oil market have pushed traders from one extreme to the other, as headwinds collide with tailwinds, with the global economic slowdown combating fears of a shortage. In the past two weeks, the swing has increased dramatically, as concerns about a slowing global economy and fears of oil or fuel shortages have intensified. As a result, the oil market has become a very bewildering place.
Earlier in October, for example, the International Monetary Fund issued a stark warning about the global economy. In it, the IMF Economic Adviser and Director of Research, Pierre-Olivier Gorinchas, said, Wrote The slowdown in 2023 will be widespread, with countries accounting for about a third of the global economy on the verge of contraction this year or next.
The three largest economies, the United States, China, and the Eurozone will continue to falter. Overall, this year’s shocks will reopen economic wounds that were only partially healed after the pandemic. In short, the worst is yet to come, and for many people, 2023 will feel stagnant.”
It is normal for such forecasts to be somewhat bearish for oil, but at the same time, warnings were flashing about the condition of diesel market. US distillate fuel stocks are at record lows, demand remains strong and the impending EU ban on Russian fuel is contributing to the shortage, which was originally caused by lower refining capacity in both Europe and the US and a faster-than-expected recovery In demand after pandemic lockdowns.
Related: Biden’s plan to refill the Strategic Petroleum Reserve is unlikely to boost US oil production
she becomes worst per day too. CNBC Call It’s a perfect storm, with low inventories combined with rising demand ahead of winter, a recipe for price hikes that are spreading across industries and hitting consumers’ already empty pockets.
Ultimately, then, the diesel crisis should also be bearish relative to oil demand, but only in theory. Diesel drives economies. The destruction of demand will only appear when the supply situation becomes catastrophic, and this would certainly imply a reversal of recession. However, until then, the destruction of demand will be limited – like oil, its derivatives are completely inelastic when it comes to price.
The latest figures about institutional trade tell us. John Kemp from Reuters Writes That while major speculators bought two major crude oil deals over the past four weeks, worth 62 million barrels and 47 million barrels, then made significant sales of 34 million barrels and 50 million barrels over the same period.
OPEC in the meantime Starch It forecasts long-term oil demand, and again reiterated its calls for new investments in fossil fuels, just days after the International Energy Agency said oil and gas demand is about to peak in a few short years as we expand wind and solar power.
“The total investment figure for the oil sector is $12.1 trillion until 2045,” OPEC Secretary-General Haitham Al-Ghais said at the ADIPEC conference in the United Arab Emirates, as quoted by Reuters.
“However, the chronic underinvestment in the global oil industry in recent years, due to the industrial downturn, the COVID-19 pandemic, as well as policies focused on ending financing in fossil fuel projects, is a major cause for concern.”
This means that the future supply of oil in volumes consistent with demand is not at all guaranteed. Nor is it the accumulation of wind and solar energy due to the looming copper shortage two Mining managers They warned the past two weeks would be severe. In addition, Indonesia is considering creating an OPEC-style organization for battery metal miners, which will make the supply chain for the energy transition more difficult.
Investment in new oil production does not appear poised and ready to take off amid peak demand scenarios. This indicates that the oil market will remain a very uncertain place for the foreseeable future or at least until those countries that are expected to slide into recession do.
By Irina Slough for Oilprice.com
More Top Reads from Oilprice.com: