Oil prices dip but still face plenty of upward pressure
Oil prices dip but still face plenty of upward pressure
The sell-off on Monday wasn’t limited to just stocks. Commodities took a hit too, particularly crude oil.
Futures for West Texas Intermediate dipped below $72 a barrel today before regaining some ground. But while the market jitters impacted prices, there are larger factors pushing and pulling oil prices.
Considering everything that’s been going on in the global economy and geopolitics lately, the price of oil has been remarkably stable, said Hugh Daigle at the University of Texas at Austin.
“Going back, maybe 18 months, oil has been bouncing around $80 a barrel,” he said.
That’s due in part to the actions of OPEC+. The group of oil-producing countries that make up that cartel have been voluntarily cutting back production.
“The idea there is that by constraining the supply, it’ll drive up the prices and make things slightly more profitable,” Daigle said.
And that’s essentially put a floor on oil prices, keeping them from dropping too far, even as the United States has pushed more oil into the global market.
On the other end, there’s China, where an economic slowdown has weakened demand growth for oil, said Matt Smith at the analytics firm Kpler.
“That’s really putting a ceiling on prices, because they’re just not pulling in a lot of crude right now, because they just don’t need to refine as much,” he said.
And in between that floor and ceiling are all the geopolitical struggles in the world right now — tensions in the Middle East, the war in Ukraine, a contested election in Venezuela — that could lead to more sanctions.
“There’s a number of different geopolitical concerns simmering away right now. But ultimately, they’re not having an impact on prices,” Smith said.
But any one of them could push up prices if oil supplies are impacted.
On the flip side, a downturn in the U.S. economy could depress demand and drive prices lower.
Ultimately, said Amy Jaffe at New York University, the outlook for oil prices is uncertain. But “there is a long-term trend that whenever we have very high oil prices, like we’ve had for the last couple of years, there tends to be a correction.”
And we’re due for a correction to the downside, she said.
One positive of falling oil prices, according to Jaffe: falling prices at the pump, which could further ease inflation, and make the Federal Reserve more likely to cut interest rates soon.
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