Softening

We have had four weeks of oil price rollbacks. Although oil prices firmed up a bit the past few days, the general trend appears to be a softening of oil prices into the foreseeable future.

The downward drift of oil prices was largely unexpected. The large hedge funds bet on higher oil prices and began speculating on futures. OPEC+ maintained production cuts aimed at keeping prices up.

Broader market trends, however, dictated a softening of prices.

The industrial economies, particularly China, have been flagging. Several European economies are technically in recession. Despite the seasonal uptick in oil demand during the cold months in the northern hemisphere, the global market remains oversupplied.

The price spike in the preceding months was due largely to the US refilling its strategic petroleum reserves. Those reserves have generally been filled up, reflecting in a general easing of global market demand.

At prevailing price levels, it is still profitable for companies using fracking to extract oil. That is a plus on the supply side.

The European Union is strictly maintaining its $60 per barrel cap on Russian oil exports. The goal is to prevent the Russians from exploiting the high oil price regime to cover the costs of her war against Ukraine and finance her flagging domestic economy.

Once dismissed as marginal, renewable energy sourcing is beginning to make a dent on the overall demand picture. The shift to electric vehicles has turned out to be more dramatic than earlier expected. Existing nuclear plants have been recommissioned after the oil price shock following the Russian invasion of Ukraine.

Over the last few weeks, market players have become convinced that Israel’s war against Hamas is not about to explode into region-wide turbulence. Although most industrial nations have enforced sanctions against Iran, the oil producing country continues to export oil mainly to India and China. While oil prices were high, restrictions on Venezuela’s oil exports were relaxed.

The wave of inflation that swept most of the world’s economies restricted spending on fuel as families focused more on food. That wave is continuing, despite signs indicating the onset of a weak