Oil is recovering after the worse day in three months!
Oil prices on Wednesday could recover a bit after yesterday's free fall. Earlier today, WTI could recover some of its loss. However, concerns about demand destruction remain in the background. On Tuesday, economic slowdown fears and Citygroup warn that WTI price could fall to $65 this year in the event of a recession, creating a massive negative sentiment in the Oil market that sent it down towards $96.
The oil market these days is subjected to many factors. Yesterday, Mohammad Barkindo, the OPEC Secretary-General, said that the Oil and Gas industry faced low investment in recent years for many reasons- and we can overcome the situation only if extra supplies from Iran and Venezuela were allowed. However, Robert Malley's (the US Special Envoy for Iran) comment about the latest negotiations in Qatar with Iran was pessimistic. He said that negotiations in Doha were a "wasted occasion." So, Iran's oil return to the market does not seems something likely in the near term, at least.
On the other hand, yesterday we had a worrying report from the City group, saying that the global economic outlook is gloomy, which can decrease the energy demand. City group's analysts expect $65 the US oil price by year-end in 2022. Besides the global economic slowdown in China, Xi'an city announced seven days of mobility restrictions due to Covid-19. Furthermore, we know that newly affected numbers in many countries have been increasing in recent months, which can become a considerable concern if the quarantine regime returns.
In Europe, the situation is a bit different, especially for the Gas market. Energy prices for Europeans are still increasing. Russia shut down the Nord Stream-1 natural gas pipeline for routine maintenance (the maintenance period starts from July 11 to 21). Monday's strike in Norway has intensified market concerns about supply. Local agencies have warned that about 13% of Norway's natural gas exports could be at risk if the strikes escalate. European benchmark natural gas futures have doubled this year to their highest level in nearly four months.
If conflicts continue in Ukraine, it is not just the European economy that will hit; Japan also can experience the same shortage. Even though they are closer to the US and can make up for the deficit from the US, still changes in the "Sakhalin 2" can also damage Japanese development.
On Monday, Russian President Vladimir Putin signed a new decree to establish a new company responsible for operating the energy cooperation development project "Sakhalin 2", but whether the original foreign investors can continue to hold shares is up to Russia to decide. Mr. Putin believes this order will protect Russian interests from "unfriendly actions" by "unfriendly countries." This decision will significantly impact Japan because almost all 9% of Japanese LNG imports from Russia come from the "Sakhalin 2" project.
Despite all mentioned concerns about the demand decrease and economic developments, oil prices can still increase due to geopolitical tensions. Analysts at JPMorgan Chase say that the West's approach to Russia for their oil exports can cause more significant problems. Analysts at this bank expect a "3 million bpd cut would lift benchmark Brent to $190, while a worst-case 5 million bpd cut could mean oil prices reach $380 a barrel".
From the technical point of view, WTI moves in a clear downtrend now in the Daily chart, with solid support at around $95. If the asset's price breach this level, more bears will be in the spotlight; otherwise, we have the chance for another bull run there.
