The effect of recession and price adjustments in oil

The price drop due to the recession… As in the whole commodity group, it is observed that there is a decrease in oil that can be expressed as a stagnation. Although prices could not determine a clear direction due to bilateral uncertainties, macroeconomic implications of stagnation in demand and price adjustments by oil players seem to have driven the last few price movements.

Oil price adjustments… As it is known, Russian oil, which is affected by the embargoes, is delivered to buyers in Asia at a discount. The competitive market created by Russia’s price cuts caused some price adjustments in other oil producers as well. Like Russia, Iran, another producer affected by the embargo, appears to be preparing to sell its oil price at a discount to match Ural oil. Iranian oil is priced around $10 below Brent futures. These discounts affect the oil sold in the Chinese market.

China’s role in demand and discounts… Russia’s exports to China rose to a record level in May. While Iran has lowered its oil prices to stay competitive in the Chinese market, it still maintains strong flows due in part to increased demand as China eased strict virus restrictions that hamper consumption.

China’s independent refineries are the main buyers of Russian and Iranian crude, for which cheap supply is advantageous. These refiners supply the domestic market and have suffered from refining losses in recent months as virus restrictions have dampened demand.

Conclusion? It seems that the latest price adjustments will increase the divergences regarding production quotas and pricing in OPEC+ as well. On the other hand, as Russia’s progress in Ukraine continues, there is still a serious uncertainty about the supply and the effects of recession must be felt seriously in order for the supply to exceed the demand. Supply uncertainties can be even more decisive at this stage, as cartel members make them more reserved about production quotas.

Kaynak Enver Erkan / Tera Yatırım
Hibya Haber Ajansı