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The energy situation is very delicate as demand is also slowing in China according to key economic data. The country saw its crude oil imports slump by 9.4% in August when compared to the year-ago period.
Global economic pressures are weighing down on oil prices with a confluence of external factors depressing gas demands across the board. While there is a small revival in the prices at this time, Brent crude futures settled down $4.83 to $88 a barrel on Wednesday, falling below $90 a barrel for the first since early February.
The United States West Texas Intermediate crude also touched down by $4.94, or 5.7%, to $81.94, its lowest since January.
The oil price trend is being shaped by “various external forces such as the energy battle between Western countries and Russia,” said analysts from Haitong Futures in a note.
The concerns about oil stem from the standoff between Russia and European countries. The European Union leaders have been contemplating capping prices on Russian oil, in a bid to bolster citizens’ buying power in the face of increasing prices. Russian President Vladimir Putin threatened to halt oil supply to the region if the cap is placed.
The threat seems not to have any effect on EU leaders as the cap on price was introduced a few hours after Putin’s threats. The market is now reacting to the possibility of Putin carrying out his threats, a move that will strain the EU of energy supply as winter is fast approaching.
“Right now the market is basing its concerns about what will happen due to sharply higher energy prices in Europe, slowing demand in Europe, and interest rates rising,” said Phil Flynn, an analyst at Price Futures Group.
The energy situation is very delicate as demand is also slowing in China according to key economic data. The country saw its crude oil imports slump by 9.4% in August when compared to the year-ago period. With the country’s COVID-19 concerns slowing down activities and demand for oil, Russia, one of the key suppliers to the country may also revise its stance to shutter supply to Europe.
Inflationary Pressures Weighing Down Global Oil Prices
Despite concerted efforts to curb inflation in most economies, Central Banks are still not winning the fight. The Bank of Canada raised its interest rate Wednesday by three-quarters of a percentage point on Wednesday. The bank’s officials are still committed to more aggressive hikes in the mid to long term.
An interest rate hike from the United States Federal Reserve is yet one more event most market stakeholders have been anticipating. Fed Chair Jerome Powell has indicated aggressive hikes will continue until inflation is brought down to the targeted range of 2% to 4% on an annualized basis.
The macroeconomic policies have an untold impact on global oil prices as inflation is weakening most fiat currencies against the US Dollar. Since all international oil trade deals are priced in the Dollar, the greenback has continued to be strengthened.