Global oil prices may stay under $100 a barrel for the rest of the year as rate hikes from central banks have tightened credit and reduced investments in risk assets such as commodities, commodities trading major Trafigura said on Tuesday.
“Given the macro headwinds, I think generally prices will struggle… despite imminent sanctions,” the trader’s chief economist Saad Rahim told Reuters on the sidelines of the 38th Asia Pacific Petroleum Conference (APPEC).
Brent crude jumped to multi-year highs of about $139 a barrel in March following the Ukraine war, but slipped in recent months to around $85, weighed down by a strong dollar, interest rate hikes and concerns about recession that could dampen oil demand.
Prices are expected to remain volatile as market liquidity has tightened while the upcoming European Union embargo on Russian oil and the G7’s price cap mechanism are fanning concerns of tighter supply.
“So far the market has been more redirection than reduction, but I think it is unclear from here,” Rahim said, adding that is also going to be complicated by the fact that the world is heading into an economic slowdown.
However, the Chinese economy is not doing as badly as what people think while Europe’s oil consumption is restricted by a lack of supplies rather than demand destruction, he said.
“The balance of risks and what we know today suggests that it would take quite a few changes in the market for oil to trade well above $100,” Rahim said.
Oil demand could rebound next year if China lifts COVID-19 restrictions and if the U.S. Federal Reserve pauses or cuts interest rates to support growth, he added.
These factors, underpinned by underinvestment in the oil sector and low global oil inventories, could eventually push Brent back above $100 a barrel, Rahim said.
The oil market is also watching out for possible supply responses from the Organization of the Petroleum Exporting Countries amid lower prices.
“We’re well below $90 and they have not reacted. So I think they are looking at totality of market conditions to say okay, actually demand today is still relatively holding up,” Rahim said.
On ongoing talks between Iran and world powers to revive a nuclear deal that would lift sanctions on Iranian oil, Rahim said: “I struggle to see a deal as long as Iran is insisting on guarantees and compensation.”
Iran said on Thursday it saw no point reviving a 2015 nuclear pact without guarantees the United States would not withdraw again and unless U.N. inspectors close probes of Tehran’s atomic programme, a stance a U.S. official rejected as “unreasonable.”