Brent crude oil has hovered around $110 a barrel since August, with last week’s news of a ceasefire between Israel and Hamas tempering the uptick since the beginning of November. Worries over supply disruptions caused by fighting in the Middle East have bolstered prices, but the path of least resistance remains downwards. “The fundamentals are weak,” says Michael Lynch of Strategic Energy and Economic Research.
The International Energy Agency has lowered its forecast for global demand in the fourth quarter for a second time. Europe’s recession is deepening, China has slowed, US demand is lacklustre and appetite for oil in emerging markets has been “less than robust” so far this year, says Morgan Stanley.
Oil prices are high enough to dampen the global economy further, says Capital Economics. “Manufacturing has stalled whenever Brent has been above $110.” That points to weaker eventual demand. Inventories in the developed world have risen above the five-year average, Iraqi exports have increased, and Opec continues to churn out oil at near-record levels. Its secretary-general notes “the market is very well-supplied”.
So barring a flare-up of violence causing more supply worries, prices look set to subside.