What Can Drive Oil below $90 a Barrel?

The past two years have seen the biggest swings in oil prices in 14 years. This rollercoaster has baffled markets, investors, and traders. The main reasons for such dynamics were geopolitical tensions and the shift towards clean energy. In the last two years, oil traded as cheaply as $19 a barrel - or at minus levels if you're looking at WTI futures - and it went up to $139.

We haven't seen such huge swings in oil prices since the 2008 financial crisis when oil collapsed from $150 to less than $40. The collapse was due to the fears of a global recession, which led to a drop in oil demand as in our current situation.

Reasons why are oil prices volatile now

1. The COVID-19 pandemic, the following lockdowns, and their consequences that we are suffering from now.
2. Shift towards clean energy and reducing harmful emissions.;
3. Lack of investment in new oil projects due to the high cost and low demand.
4. OPEC + policy, massive supplies cuts, and the following attempts to re-pump these supplies into the market.
5. Above all, the unpredictability of Russia's actions and the fate of Russian oil.

The result was a sharp rise in inflation amid sluggish demand, slowing economic growth, and growing recession fears.

Two cases for oil to slide below $90 

Oil prices may drop to $90 a barrel if the world's largest oil consumers continue to struggle with high inflation and low growth.

1. If the United States continues to suffer from high inflation, which leads to a slowdown in economic growth and a decline in demand with higher prices for fuel and services for consumers, and fears that the US economy will enter a recession.
2. If China cannot find solutions to its economic problems and the repeated shutdowns that threaten its production and growth, which in turn affects the global economy.

Oil may drop below $90 and stay around this range for a while. Economic woes in the world's two largest economies will affect oil demand. The effects will, of course, be seen on Brent and US WTI prices.

A case that may support oil

At the same time, oil demand may find some support from record high natural gas prices, especially in Europe. That will prompt consumers and factories to switch to oil-fueled generation to survive the brutal winter ahead. In addition, the oil supply is not expanding and may even face problems in the coming period as oil demand increases in the winter.

Supply concerns are expected to escalate as winter approaches, as EU sanctions banning sea imports of Russian crude and oil products are set to take effect on December 5. The modest increase approved by the OPEC+ of 100,000 barrels per day in September will not be enough to meet the increased demand. 

Technically, Brent (XBRUSD) may drop to 80.00 if it breaks below $90 and settles below that level.

LOG IN

Amira Mohey

More by this author

Similar

02.09.2022 17:18 Upcoming Cold winter and Burning Energy Prices, What will Europe do?

The EU plans to intervene in markets directly to curb rising energy costs, threatening to push the Euro area's economy into a deep recession.

19.08.2022 15:19 Oil Prices Might Cause Another Inflation Wave

US oil exports reached a record last week at five million barrels a day, according to Energy Information Administration data…

19.07.2022 12:25 The Fed to Decide the Oil Market’s Future

The oil prices rally and world central banks’ dovish monetary policy caused by the Covid-19 pandemic were the main reasons for current inflation growth…

Latest news

26.01.2023 15:30 Will USDJPY slide lower in 2023?

Last year was tough for the Japanese yen. USDJPY gained more than 30% over 2022, striking above 150 in October. While anticipation of slower Fed rate hikes pulled the pair below the 130 level at the start of 2023, the speculations over the destiny of BOJ’s yield control policy grabbed the attention of the Japanese assets in the middle of January. What lies ahead for traders of the Japanese yen?

25.01.2023 14:14 BoC Rates Could Alter The Trend on USDCAD and others

Today, at 5:00 pm (GMT +2), the Bank of Canada will publish the Overnight Rate, which represents short-term interest rates, and is pivotal to the overall pricing of the Canadian Dollar in the global markets. Let's look at how the markets are faring ahead of the BoC rates release.

24.01.2023 11:23 MSFT faces gloomy forecasts ahead of earnings report

In a call scheduled for January 25, 00:30 am GMT+2, Microsoft will publish the company's earnings for the final quarter of 2022 and comment on the results, projections, and outlook for the nearest future of the company.