Why has Brent Crude jumped back to above $100/bbl

Brent jumped above $100/bbl
Brent jumped above $100/bbl

Global Market
by 5paisa Research Team Last Updated: 2022-08-25T16:32:34+05:30

The global energy market is in a state of flux. Europe is gradually getting engulfed in one of its worst energy crisis in recent times. In addition, Saudi Arabia has cautioned that the OPEC may cut supplies in its latest meeting to align the demand and supply closer together. This is more so in the light of the recessionary conditions in the market. Brent crude had touched a low of $92 last week before it bounced back to cross above the $100 levels. For India, oil still remains a global commodity play with its 85% dependence on global crude supplies.

Petrol and diesel have caused too much inflation in the last few months and even US gasoline prices are going through the roof. Just a few months back, JP Morgan had warned that oil could cross $300/bbl if the Russia Ukraine war continued to disrupt Russian supplies. However, that now looks like a far cry with oil struggling to even scale past the $100 mark. Oil is already about 25% down from the peak of the early part of this rally in March when crude had touched a high of $140/bbl, albeit briefly. 

However, there are recession fears and if the recession fears remain elevated then even with supply cuts, the prices may continue to fall. For now, the statement of Saudi Arabia that the OPEC planned to cut supply to align with the demand. However, what we saw in the last 10 years was that when there are growth question marks over the economy as a whole, then no amount of supply management of oil has been of any help. China, meanwhile, is adding to the uncertainty with flat to tepid growth.

While demand will remain the key factor in the global oil balance, it must be added that the main issue will be  on how the big names like Trafigura and Vitol can manage the supplies without creating too much of oil market disruption in the short run. Saudi Arabia has been mooting supply cuts but that has hardly worked when the world is in recession. For now, the oil prices are above $100/bbl and everyone is happy. However, if the problems in China extend, it will have serious ramifications for the global economy.

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