Worsening demand outlook spurs oil prices to retreat Supply tightness is expected to continue to provide support

Concerns about the economic outlook in Europe and the United States have risen significantly, international oil prices have fluctuated lower over the past two months, New York oil prices have fallen from above $120 per barrel to the current level of around $90 per barrel, and Brent crude oil futures, although the cumulative decline is slightly smaller, but the trend is consistent
.

However, demand-side fundamentals in the oil market have improved
as market confidence in a soft landing of the U.
S.
economy has increased and optimism about the continued recovery of the Chinese economy.
The large-scale release of strategic crude oil reserves by the United States will end this autumn, Russia's supply of oil and gas to Europe is expected to be significantly reduced in the coming months, it is more difficult for OPEC to significantly increase supply, and international oil prices are expected to be effectively supported
by fundamentals.
The progress of negotiations on the Iran nuclear deal, the impact of the Atlantic hurricane season on oil production, and the trend of the pandemic may become uncertainties affecting oil prices
.

Oil prices fell back to pre-conflict levels between Russia and Ukraine

New York crude oil futures and British Brent crude oil futures fell to the level before the outbreak of the Ukraine conflict in February in early August, and since then have maintained a narrow range of fluctuations, and have not yet achieved an effective breakthrough
.

Although the conflict in Ukraine continues and Western pressure on Russian energy sanctions is increasing, demand-side concerns still contribute to a significant drop
in oil prices.
In addition to the downward revision of GDP data, lower macro indicators such as purchasing managers' indexes and consumer confidence indexes, and unabated inflation data stimulated market expectations of aggressive interest rate hikes by European and American central banks, all of which exacerbated market concerns, and stocks, currency markets and commodity markets resonated
for some time.

Data released by the University of Michigan showed that the US consumer confidence index hit its lowest value in June since the release of relevant data began in November 1952, and the eurozone consumer confidence index fell to its lowest record low in July
.

The International Energy Agency's monthly oil market report for August, released on the 11th, said that increased oil supply and heightened concerns about the deterioration of the economic outlook caused oil prices to fall by about
$30 per barrel compared to the June peak.

Crude oil prices fell
slightly in July as concerns about slowing economic growth intensified, the U.
S.
Energy Information Administration's monthly short-term energy outlook report released Aug.
9 said crude oil prices fell slightly in July as concerns about slowing economic growth intensified.

UBS Group said on the 12th that supply-side constraints supported higher oil prices in the first half of the year, but have given way to the deterioration of global economic growth prospects and the strengthening of the US dollar
.
If the global economy experiences a deep recession, commodity prices could fall
further.

The Organization of the Petroleum Exporting Countries (OPEC) released the August oil market report on the 11th, lowering the global economic growth forecast for this year and next year to 3.
1% respectively, and lowered the forecast for global oil demand this year
.
Global oil demand was revised down
in the second half of 2022 amid another rebound in pandemic restrictions and geopolitical uncertainty.

OPEC's forecast data showed that global oil demand has been revised down by 260,000 barrels
this year and next.
Among them, although the average daily demand for oil was revised up by 220,000 barrels in the second quarter, the average daily demand in the third and fourth quarters was revised down by 720,000 barrels and 550,000 barrels
respectively.

It is worth noting that although Russian oil exports are declining, they are higher than market expectations, and about two-thirds of the oil affected by sanctions has been successfully resold to other markets
.

Russia's oil exports averaged 7.
4 million barrels per day in July, down 115,000 barrels month-on-month, compared with around 8 million barrels per day at the start of the year
, the IEA said.

Oil prices remain supportive of positive support

Due to the sharp rise in oil prices, the supply side has not been able to significantly increase production except for releasing crude oil reserves, and the market has repaired
itself through the destruction of demand caused by high inflation.

In addition to the recent improvement in expectations of economic trends, the supply side continues to face constraints due to insufficient investment, Russia's energy supply to Western countries is expected to continue to decrease, and the large-scale release of strategic crude oil reserves in the United States will be converted to buying crude oil from the market to fill inventories after the end of this fall, and oil prices are expected to continue to fall with
limited space.

The International Energy Agency said gas and electricity prices have risen to new all-time highs, which in some countries has spurred energy demand to switch
from gas to oil.
The latest data confirms an increase
in oil consumption for power generation in Europe, the Middle East and Asia.
Fuel switching
is also taking place in Europe's industrial sectors, including refining.

Although the latest report from the International Energy Agency raised global oil demand by 380,000 b/d for all of this year, 2.
1 million b/d
higher than in 2021.
However, the year-on-year growth in global oil demand is expected to fall from 5.
1 million b/d in the first quarter of this year to 40,000 b/d
in the fourth quarter of this year.
For the rest of the year, the real upside to oil demand growth was limited
.

UBS said commodity supply was constrained
due to years of underinvestment.
In addition to the oil industry facing underinvestment, OPEC and non-OPEC oil producers have limited spare capacity, the global economy may only have a soft landing, and overly pessimistic forecasts for commodity markets do not fully take into account the supply-side situation
.

UBS believes that commodities as a whole are oversold, and investors' concerns about economic growth will ease.

Due to climate change, geopolitics and increased carbon reduction targets, investors will be more concerned about the supply gap
.
Strong oil demand from China, India and Mexico, low global oil inventories, limited OPEC capacity, Europe's ban on Russian oil and reduced Russian gas shipments to Europe could worsen
the energy supply crunch.

The International Energy Agency said that oil supply is at risk of supply disruption, and a new round of oil prices rise
cannot be ruled out.

The latest report from the U.
S.
Energy Information Administration expects average spot prices of Brent crude to be $104.
78 and $95.
13 per barrel this year and next, respectively, compared with the agency's forecast of $104.
05 and $93.
75 per barrel the month before
.
Meanwhile, the U.
S.
Energy Information Administration expects New York crude futures to average $98.
71 and $89.
13 per barrel this year and next, respectively, slightly down from $98.
79 and $89.
75 per barrel forecasts in July
.

UBS also said that despite the wide volatility in commodity prices, it expects its overall upward trend to be broadly solid
.
Brent crude futures are expected to rise to $130 a barrel by the end of September and remain at a high of around $125 a barrel over the next three
quarters.

The IEA, which is skewed towards consumer countries, while raising its outlook for Russian oil supplies, said that with the EU embargo on Russian oil fully coming into effect in February 2023, it is expected to lead to a further decline in Russian supply, and Russia will have to find new buyers
with about 1 million b/d of refined products and 1.
3 million b/d of crude oil.