OPEC has had little luck pushing up crude prices
after Russia’s invasion of Ukraine any hint of bad news sent energy prices into the stratosphere. When a fire forced an American gas plant to close, strikes clogged French oil terminals, Russia demanded Europe pay for fuel in roubles or the weather looked grimmer than usual, markets went wild. Since January, however, things have been different .
Disappointing demand may be part of the answer. In recent months expectations for global economic growth have been slashed. The failure of several banks this spring raised fears of an imminent recession in America. Inflation is battering consumers in Europe. In both places, the full impact of interest-rate rises is still to be felt. Meanwhile, in China, theis proving much weaker than expected. Anaemic growth, in turn, is dampening demand for fuel.
A more convincing explanation can be found on the supply side of the equation. The past two years of high prices have incentivised production outside of, which is now coming online. Oil is gushing from the Atlantic basin, through a combination of conventional wells and shale and tar-sands production . Norway is pumping more, too.
When inflation was soaring and interest rates remained modest, commodities, notably crude oil, were an attractive hedge against rising prices, pushing up prices as investors flooded in. Now that speculators expect inflation to drop, the appeal has dimmed—just as higher rates make safer assets like cash and bonds more alluring. As a result, speculative net positioning has slumped. Higher rates also raise the opportunity cost of holding crude stocks, so physical traders are offloading their stock.
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