Macro Fears Keep a Lead Weight on Oil

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A weaker macroeconomic backdrop and signs of cracks in the global financial system have dropped oil prices out of the $80-$85 per barrel range where they have traded since early January. Oil has found direction, but it is not upwards as many had assumed on the back of a recovery in Chinese demand. Oil balances show that the world can, for now, absorb some limits to Russian supply and rising demand from China. However, so far Russian exports remain resilient, while market bulls have consistently misjudged and mistimed China’s demand rebound. Fears of another financial crisis after the collapse of Silicon Valley Bank (SVB) last week have clobbered risk assets, with Brent briefly dropping to its lowest level since December 2021 below $75/bbl this week. Coming on the heels of a mild winter, the bull case that pent-up demand in China and a recovery in international air travel would push oil to $100/bbl or higher looks less likely, at least in the near term. Energy Intelligence sees an additional 737,000 barrels per day of global jet fuel consumption in 2023, to 7.4 million b/d — but jet makes up only 7% of global demand. China’s property sector, a large demand booster for other fuels, is still licking its wounds after its epic fall. And in its fourth quarter 2022 report, the People’s Bank of China made clear that the primary objective of its monetary policy was to smooth out the volatility in aggregate demand, not to fuel it with a wild rebound.

Macroeconomics , Oil Futures and Derivatives, Oil Forecasts, Oil Prices
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