Oil prices retreated by more than ten dollars a barrel yesterday, recording the largest one-day drop in nearly four months, amid growing fears of a global recession, a scenario that may limit demand for oil. But oil returned to positive movement today, Wednesday, after Russia’s decision to stop shipping Kazakh oil.
The earlier decline in prices comes at a time when US President Joe Biden is preparing to visit the Middle East between July 13 and 16, including Saudi, the Palestinian territories and Israel.
Biden in the region
On July 16, Biden will attend in the Saudi city of Jeddah a summit that includes the leaders of the Gulf Cooperation Council, in addition to Egypt, Iraq and Jordan. On the first of this month, he said he would not ask Gulf countries to increase oil production, and believed that all Gulf countries should increase oil production, “not just Saudi Arabia.”
But Biden faces major challenges at home, in light of high inflation rates, soaring prices of goods and services, and growing anger among Americans. Gas and energy are a major driver of inflation rates, and they raise a huge political problem for Democrats in light of the US congressional midterm elections that will be held during the next few months.
To mitigate these challenges, Biden has criticized oil and gas companies for their windfall profits, and demanded oil executives to lower record US gasoline prices.
Biden also floated the idea of capping Russian oil prices during the G7 summit last week, to increase restrictions on the Russian Kremlin’s ability to fund its war in Ukraine and try to protect consumers amid soaring oil prices.
Russia has stopped the shipment of Kazakh oil, via the Caspian Oil Transmission Line, to world markets, which is one of the largest ways to transport oil from the Caspian Sea to markets, and this led to an increase in prices.
The Russian “Spontec” agency reported that the work of the Kazakh oil transmission line was suspended by a decision of the court of the city of Novorossiysk in southern Russia, and this for a period of 30 days, after stopping 4 days from June 19 to June 23 last.
The Russian authorities attributed the suspension of the line to identified environmental violations that must be eliminated in order for the line to resume operation.
Yesterday, US oil futures benchmark, West Texas Intermediate crude for August delivery, closed below $100 a barrel for the first time in nearly two months after falling 8.2% to $99.50 a barrel.
Citigroup: $65 a barrel!
This performance comes after Citigroup expected that the price of a barrel of crude oil would fall to $65 this year in the event of a recession. The report indicated that oil prices may drop to $45 by the end of next year if the world enters a recession and demand for fuel tanks.
According to Citi, oil demand becomes negative “only in the worst global recessions, but in all recessions, oil prices fall to approach marginal cost.”
But in the same report, Citi said it did not expect the US economy to fall into a recession.
It said that those expectations are based on the absence of any intervention by the producers of “OPEC +”, and a decline in oil investments.
In contrast to Citigroup’s warning, Goldman Sachs said that the price declines are exaggerated, noting that it is too early for the oil market to succumb to such fears.
And JPMorgan warned this weekend that oil could reach $380 a barrel in a worst-case scenario if Russia starts cutting crude oil production in response to the sanctions.
On the other hand, former Russian President Dmitry Medvedev said that setting a ceiling for the Russian oil price at half its current level might cause oil prices to rise above $400 a barrel. This is in complete contrast to the scenario that JPMorgan drew at $380 a barrel.
Other analysts also told “Reuters” that if recession fears materialize and demand for crude decreases significantly, prices may witness severe downward swings.
The markets are awaiting the latest weekly data on oil and fuel inventories in the US, which will be released later this week.
