Uncertainty dominates large fluctuations in oil prices or accelerates a recession

When people in the industry are generally optimistic about the future market and believe that international crude oil prices will be soaring all the way in the second half of this year, oil prices have turned downwards, falling by 30%
in just two months.
The sharp fluctuations in oil prices reflect to some extent the current state of the world economy – uncertainty dominates and the future is difficult to predict
.
All kinds of great uncertainties will exacerbate the economic turmoil in various countries, and the chain reaction of oil prices may increase the impact of inflation, eventually dragging the world economy to the brink of
recession.

The sharp fluctuations in oil prices reflect to some extent the current state of the world economy – uncertainty dominates and the future is difficult to predict
.

Taking stock of this year's market performance, industry insiders are generally optimistic about the future market, believing that in the second half of this year, international crude oil prices will soar all the way and break through the $130 per barrel mark
.
Who would have guessed that oil prices would turn around and fall below $90 a barrel, falling 30 percent in just two months and back to their January average
.
The current oil price can be said to be a dilemma, and violent fluctuations
may occur at any time.

Market price fluctuations may seem chaotic, but there are reasons to follow
.
Crude oil prices stopped falling and recovered on Thursday, WTI rose 3.
38% intraday to $91.
09, and Brent crude oil was close to $
100 at one point.
The reason for the market rally is that crude oil supply fundamentals remain tight
.
The U.
S.
Energy Information Administration released a report saying that in the week ended Aug.
12, U.
S.
crude oil inventories were 7.
1 million barrels lower than last week, gasoline inventories were reduced by 4.
6 million barrels, and millions of barrels of crude oil flowed out
of the National Strategic Petroleum Reserve.
U.
S.
commercial crude oil inventories are now about 425 million barrels, 6 percent below the five-year average, and gasoline inventories 8 percent
below the five-year average, the data shows.
In addition, a stronger U.
S.
labor market has also boosted market confidence slightly
.

The market took advantage of the news to rebound, but the technical side did not improve, and the downward trend continued since the June
highs.
There are several major factors affecting oil prices, such as the unprecedented geopolitical tensions caused by the Ukraine crisis, the energy crisis, inflation and extreme weather may drag down economic growth, making international crude oil prices more susceptible to unforeseen events
.

In the absence of a clear long-term trend, energy prices can suddenly soar, or they can suddenly plummet
.

It is the great uncertainty that will exacerbate the economic turmoil in various countries, and the chain reaction of oil prices may increase the impact of inflation, eventually dragging the world economy to the brink of
recession.
Because energy costs have an important impact on the price of everything transported and produced
, from food to building materials.
The current market is fragile, and any unexpected event could cause fuel prices to soar
.
Because of this, all parties are paying close attention to changes in international oil prices and wary of the risk of
disruption of global supply chains caused by the oil and gas supply crisis.

There is a famous saying in the oil market that "predicting energy prices has always been a fool's game"
.
Especially when the market is in a dilemma, its changes are always unexpected
.

Oil prices have good reason to break upwards
.

The Ukraine crisis remains a major variable
affecting global oil prices.
In terms of oil supply alone, Russian oil exports account for about one-tenth of the world's total of 100 million barrels per day, and Russia's daily exports have decreased by about 480,000 barrels since mid-June, which may be further reduced
next year as sanctions are further tightened.

Demand may increase
.
Russia is tightening its grip on gas sales to Europe in retaliation for-for-tat sanctions, and European utilities will be forced to burn more oil in place of gas
.
According to OPEC's forecasts, oil demand will be weaker than initially expected this year and next, but demand continues to increase and global demand is expected to expand to nearly 103 million barrels
per day in 2023.

In addition, some important institutions are also bullish on oil prices
.
Barclays lowered the average price of Brent crude to $103 per barrel this year, and the average price of WTI benchmark crude oil to $
99 per barrel.
The bank believes that despite the harsh sanctions, Russian oil supply remains resilient, the EU embargo is in full force early next year, and Russian oil supply is expected to be reduced by 1.
5 million barrels per day
.

While the market is worried about a slowdown or even a recession, there is limited room for oil prices to fall, and OPEC+ may reduce supply
next year.
Goldman Sachs also believes oil prices will run high, predicting that the average price of Brent crude oil will be $
125 per barrel from the fourth quarter of this year to next year.
The U.
S.
Energy Information Administration forecasts Brent crude oil to be $95.
13 per barrel and WTI $89.
13 per barrel next year, which is comparable
to current prices.

Of course, the possibility of oil prices looking for support downward is also very high
.

At present, the most worrying thing for speculative markets is that the recession will lead to a sharp decline in
demand.
This year's staggering oil price gains can be compared to the 1970 oil crisis and the 2008 international financial crisis, where sharply higher energy prices severely constrained economic growth and brought about socio-economic chaos
.

Since mid-June, global market fears of a recession have led to several sharp sell-offs
in oil.
In particular, the eurozone economy is moving towards recession and the major economies in East Asia are underperforming, which has weakened demand for commodities and marked
price corrections.
Industry experts believe that the reduction of investment in traditional fossil fuels will be a long-term trend, and price decline is inevitable
.
In particular, the development of new energy is unstoppable, which will restrict the strengthening
of oil prices in the medium and long term.

At the same time, the supply of crude oil has not decreased
.
The U.
S.
Energy Information Administration expects U.
S.
crude oil production to be 11.
86 million b/d this year and 12.
7 million b/d
next year.
The average OPEC crude oil production will be 28.
47 million b/d this year and increase to 29.
04 million b/d
next year.
In addition, oil field production in Latin America and Africa will increase
.
There is news that the Iranian nuclear agreement is close to being reached, Iranian crude oil is preparing to return to the international market, may increase global supply by more than 2 million barrels per day, will greatly alleviate the supply shortage problem
.

At present, speculators have left the market to watch
.
As of early August, the net long speculative positions in Brent and WTI crude, i.
e.
the difference between bullish and bearish bets, had fallen to very low levels
.
Speculative trading is flattening, indicating that the market will continue to consolidate, waiting for news breakout opportunities
.

In the long run, Europe's energy crisis is a warning that neglecting energy security will have serious consequences
.
There is a need for countries around the world to reassess energy security systems, including energy transition strategies, to promote not only renewable, carbon-intensive economic and social development, but also a more stable and secure energy supply
.