The specter of a possible recession has set in for good in global markets and continues to put pressure on the valuation of major instruments. It is no different in the commodity market, especially oil, which is clearly reacting to any rumors of a possible decline in demand for crude. The start of today's trading brought declines of oil prices and a deceleration of the two-day highs. Threats also seem to be perceived by Citi, which warned that if the recession materializes, oil prices could dive as low as $65 per barrel by the end of the year. As this bank's analysts added, prices for this commodity have historically fallen to levels close to marginal cost.
On the other hand, however, oil valuations are being boosted by sanctions on Russia, concerns about the possibility of increased production by Middle Eastern countries, and problems in Norway, where a strike by upstream workers begins today, which will reduce the country's gas and oil output by nearly 6.5%, Reuters reported. The strike is expected to reduce oil and gas production by 89,000 barrels of oil equivalent per day (boepd), of which gas production accounts for 27,500 boepd, Norwegian producer Equinor (EQNR.NO) reported. Problems in Norway have triggered dynamic rallies in British natural gas prices (now up +10.5%) and declines in exchanges from the Old Continent. Yesterday, JP Morgan bank warned that if Russia decided to cut oil production in retaliation for Western sanctions, "black gold" prices could skyrocket to as high as an astronomical $380 per barrel.
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Create account Try a demo Download mobile app Download mobile appThe upcoming U.S. congressional elections and the 2024 presidential election are also an important factor for the oil and energy market going forward. The Establishment is trying to balance between sanctioning Russia and taking care of the pockets of its own citizens, who are strained by fuel overpricing. In July, Joe Biden will travel to the Middle East to, among other things, discuss commodity production.
Chart comparing the average production price of a barrel of US WTI and its current market valuation. Source: Bloomberg
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