Will Oil Prices Continue Falling?

By Laila Eid | @Laila Eid | 24 March 2023

Oil markets-20230324-112626
  • Oil Prices Plummet Amid Fears of Decreased Demand

  • OPEC+ Announces Plans for Oil Supply Amid Global Market Uncertainty

  • OPEC+ decisions continue to impact oil prices

Over the past few years, fluctuations in global oil markets have been driven mainly by changes in supply and demand. In 2020, the emergence of the COVID-19 pandemic prompted OPEC to stabilize oil production for the remainder of the year. While major economies around the world adopted a monetary tightening approach, the US Federal Reserve implemented several tightening measures, despite soaring inflation rates of 9.1%. However, as inflation dropped to 6.4%, the Federal Reserve's stance began to ease, causing mixed opinions among officials but ultimately leading to improved market sentiment.

The impact of OPEC+ decisions and global economic conditions

Uncertainty looms in oil markets amid concerns of decreased global demand and increased supply. The recent decisions made by OPEC+ regarding oil supply have also contributed to the volatility in oil prices.

Economic recession fears have further exacerbated this instability, with no signs of improvement. The US government's decision to release an additional 26 million barrels of oil reserves into the markets has added to the uncertainty.

Looking back, we can observe that OPEC+ has made semi-monthly changes in the past two years, but history has shown that the group settling on a production ceiling for an extended period can lead to a drastic drop in oil prices, as seen in 2008 when prices dropped from $140 to $41 per barrel.

The Fear of a New Global Financial Crisis and Its Potential on Oil Markets

The possibility of a new global financial crisis, similar to the one that occurred in 2008, is a major concern for the oil market. The market is closely watching for signs of a new crisis or the ability of governments and central banks to manage the situation. If global financial conditions worsen, it may lead to a recession, causing a decrease in oil demand. It is crucial to monitor the US Federal Reserve's monetary policy intentions as well. If the interest rates continue to rise, it may negatively impact the performance of global companies and dollar-denominated commodities such as oil. Due to this uncertainty, the energy markets have been stagnant, with WTI remaining within a narrow range since the beginning of December 2021.