Oil comes off the boil as growth weakens
Oil prices have fallen back to where they were before a Saudi-led round of production cuts put a rocket under prices in early April, says Will Horner in The Wall Street Journal. Benchmark Brent crude futures fell by more than 6% last week to $81 a barrel, barely above the level at which the Opec+ oil producers’ cartel announced 1.66 million barrels per day (mbpd) in output cuts. “Weak demand for diesel” after a mild winter and signs of a weakening global economy have pushed prices back down.
Oil prices have surprised on the downside for some time, say Joe Wallace and Anna Hirtenstein in the same paper. After Opec+ unveiled a first round of output cuts last autumn, analysts at Goldman Sachs forecast Brent crude prices of $115 a barrel in the first quarter of this year. In the event, Brent futures averaged just $82.
Unexpectedly weak Chinese demand weighed on crude prices at the start of 2023. More recently, Saudi efforts to tighten the market have been undermined by “a burst of supply from... smaller oil-producing countries” including Iran, Guyana, Norway, Kazakhstan and
Brazil. Most significant is Nigeria, where improved security has contributed to a 350,000 bpd production rise since September, “erasing more than half of Saudi’s reduction”.
The Opec+ output cut looked like “just the kind of ugly supply shock that created mayhem in the global economy in the 1970s”, say John Authers and Isabelle Lee on Bloomberg. But the move has failed to “pitchfork the world back into an inflationary morass” as many feared. With early signs of a faltering US labour market and falling bond yields, stagnant oil prices are yet another sign that the global economy is heading for a period of weakness.