Concern for consumption – E24

The price of oil decreased during the month of November by about $15 per barrel.

The price fell to $80 a barrel on Monday, the lowest since early January.

The general oil price started at 77 dollars a barrel, and it rose at most to 133 dollars a barrel during the trading day of March 8 this year. This was only a few weeks after the Russian invasion of Ukraine.

DNB Markets analyst Helge Andre Martinsen cited concerns about demonstrations against strict corona rules in China, as well as concerns about inflation.

The protests we have seen create concerns about consumption in the world’s second most important oil consumer. When the markets are already a little negative, you don’t need to worry any more, Martinsen tells E24.

High oil and gas prices in Europe have contributed to oil companies rising sharply on the Oslo Stock Exchange this year. Equinor stock hit an all-time high in August, and although the share price has moderated, it’s still up more than 50 percent so far this year.

This is how oil stocks trade on Monday afternoon:

• Equinor shares fell 2.11 percent to 358.75 Norwegian crowns
• Aker shares fell 2.52 percent to 329 Norwegian crowns
• Vår Energi fell 2.25 percent to NOK 34.6.
• DNO fell 3.03 percent to NOK 12.17
• Okea fell by 3.13 percent to NOK 37.15

– creates fears

Recently, Martinsen points out, the infection rate in China has been on the rise.

We see this also in the northern hemisphere, but for many countries there seem to be more restrictions on mobility than we see in China, he says.

The world is still trying to figure out how to deal with the Russian invasion of Ukraine. Martinsen notes that the EU is trying to agree on a ceiling for Russian oil prices.

– Two things are happening, the European Union offers one of them the ban on Russian oil. In addition, the G7 countries and the European Union have agreed on a price cap, which is a cap on what buyers can pay for Russian oil, he says.

– This affects insurance, finance and logistics. So everyone involved in trading Russian oil is responsible for buyers sticking to the price ceiling. This creates logistical challenges for the Russians, if they do not comply with the price ceiling. Martinsen adds that this measure aims to reduce income for the Russians.

At the same time, economic growth is slowing down in many countries, and Russia has an important role as one of the largest oil exporters in the world, the analyst notes.

– They are trying to find a balance between limiting Russian income and strangling Russian oil exports, says Martinsen.

The three-digit oil price can be seen

– There are many factors here, how significant is the prospect of a recession compared to the challenges in China?

– It’s hard to arrange. The fear of recession is very important, because it can tilt demand a lot. The question is how far can the global economy stop. At its worst during the financial crisis, we lost three million barrels a day, says Martinsen.

Oil demand in Asia remains weak post-pandemic, according to DNB Markets. If this eventually rises, it could send oil prices above $100 a barrel again.

Our main scenario is a weak macroeconomic development, but where the oil price gets some momentum from increased mobility in Asia over time. We think there is a shortfall of about 2 million barrels per day in demand related to air traffic and vehicles, especially in emerging markets, Martinsen says.

– What kind of outlook for the price of oil next year?

– We believe that the oil market will look relatively tight next year, despite the macroeconomic brakes. If our macroeconomists are right, we think growth in demand will slow very sharply, but not enough to cause significant disruptions to the balance sheet, he says.

– We think we could see triple-digit oil prices next year, unless this picture changes dramatically, he adds.