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The struggle in oil markets between weak supply and slowing demand intensifies – 04/07/2022 at 10:26

Amundi’s market weekly

Inflation, central bank policies, growth forecasts… what to remember from the news this week.

Oil prices retreated this week, in the wake of consumer stocks and cyclical assets after the release of disappointing consumer spending data in the United States. Gasoline futures and crude/refined arbitrage, sensitive to domestic demand, also struggled. The meeting of OPEC+ countries (Organization of the Petroleum Exporting Countries and its allies) did not change the situation and confirmed the previous plan to increase production by 0.65 million barrels per day until august. The next meeting, on August 3, after the American visit to the Gulf countries, will probably attract more attention.

Global oil demand is undoubtedly facing increasing pressure, but the scarcity of supply could also limit the decline in prices. Indeed, US producers are focused on their energy transition while exports of Russian crude are expected to slow, under the effect of import bans and freight insurance imposed by the European Union. OPEC+ is also proving unable or unwilling to increase production. Iran is not expected to increase its oil exports until next year, at best. The resumption of negotiations on nuclear power could ease regional tensions, but these are not about to succeed. Indeed, Iran continues to develop its uranium enrichment capabilities while limiting United Nations (UN) nuclear oversight so negotiations could easily fail.

Moreover, the condition of lifting sanctions before any agreement on the nuclear posed by Iran constitutes a red line for the United States all the more impassable as the midterm elections approach. Our central hypothesis is that Iran continues negotiations in the hope of obtaining some economic relief but that the fragility of President Raisi’s political position forces him to take a hard line of negotiation, so that an agreement cannot be reached. found in 2022.

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The US tour of the Gulf next month will no doubt improve diplomatic ties with US allies but may well fail to significantly boost oil production, as the Americans hope. The United States, which does not want to divert its diplomatic attention from Asia, should not significantly increase its support in the region. For their part, the Gulf countries seeking to free themselves from their dependence on oil revenues will be reluctant to let prices fall.

Either way, oil prices are likely to have a big influence on when inflation peaks, the extent of central bank action, and the ability of economies to make a soft landing.

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