During the first half of the year, crude oil prices have remained between $80-$85/bbl which has helped the world as energy inflation fell while maintaining producers' revenues. But can this stay true for the second half of the year as uncertainty rises?
The demand end of the product and byproducts remained healthy and much higher than estimates from the start of the year. This continues to create a deficit environment as supply remains static. Recently OPEC+ announced a reduction in voluntary cuts from October 2024, this should provide some level of relief by the end of the year. But between then and now Russia has been producing higher which it has promised to adjust from next month onwards.
From the perspective of the financial market, the crude oil volatility index is the lowest since September 2023, just before it started rising. The net asset manager contracts remained net short but have reduced by one-third compared to December 2023.
All these indicators remain neutral for now and the trigger that might push them to take a trend might be the worrying escalation in the Middle East. If there is a regional conflict that involves more participants then the price would break out and rise quickly. But if there is a diplomatic solution then supply from October would force prices to break down and decline.
Either way next quarter would be very crucial in deciding the movement thereafter that would certainly impact inflation and interest rate trajectory.
Comments