“Oil markets… could be in for a bumpy ride in the short term. Inflation and central bank strategies to get prices in check by curbing demand are increasing the likelihood of a recession and dragging oil prices down with it,” said Rystad Energy senior analyst Louise Dickson in an extraordinary note.
“Despite best efforts, attempts to dampen demand and rein in inflation have not only encouraged a growing consensus that a recession, technical or full, is on the horizon but also strengthened the dollar, which limits the ability of oil-importing countries to stock up on pricy crude and crude products.”
She said that were a recession to materialize and inflation continues to push prices for almost everything higher, oil demand is almost certain to fall, bringing prices with it.
“Inflationary forces and central bank intervention are stoking the fears of a recession and economic slowdown in major fuel-consuming economies. Market players are slowly coming to terms with the prospect of this bull cycle, which has lasted more than two years, may be coming to an abrupt end,” added Dickson.
Russia-Ukraine conflict still impacting oil markets
She noted the Russia-Ukraine war is still impacting oil markets and is “a crucial factor” supporting high prices.
“If the war continues, it will only exacerbate the energy crisis and price inflation in Europe, which could slash oil demand in the year’s second half by 800,000 barrels per day.
“The supply-side pressure, in particular from outages in Libya, Ecuador and Nigeria, is not balancing out an ever-resilient Russia, which has shaken off the taboo in selling oil, with heavy discounts opening up new markets and bringing crude oil production closer and closer to pre-invasion volumes of 10 million bpd.”