Oil prices fell to the lowest level since November 2021. One would think that someone, somewhere, is pumping extra barrels of oil and then floods the balanced market. Although the situation is definitely more complicated, and the reasons behind recent sell-off are not optimistic, low prices may turn out to be a remedy for most of the current problems that affect the global economy.
Brent crude is currently trading at just over $70 a barrel, while WTI is trading around $65 a barrel. Russia is forced to sell its oil at very low prices to its contractors, which can be seen as the first big plus. Russia currently does not earn or earns very little from its oil trading. The second key thing worth mentioning is expectations that inflation will fall at a faster pace. Given last year's high base effect, prices of goods which are strongly correlated with oil prices may fall significantly. Lower inflation is, of course, a promise of lower interest rates and first rate cuts may appear sooner than we could have imagined at the beginning of this year.
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Create account Try a demo Download mobile app Download mobile appShould investors be concerned then? Fundamental factors are not weak at all, and even some minor problems in China and the US do not justify such drastic declines. It seems that the market is looking for liquidity by all means, and in order to do so investors get rid of contracts on the oil market. Can the search for liquidity coupled with lower prices cure the market faster than we might expect? Most likely we will find out pretty soon.
Oil is "extremely cheap" considering how tight the oil market is. However, this may be good news for many oil importing countries. In the short term lower oil prices should ease price pressure and at the same time support the stock market. Source: xStation5
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