OPINION
Market Rating Before FOMC MeetingJan 31
How far can the recent decline in oil prices go?
The 'military operation' launched by Russian President Vladimir Putin on February 24, 2022 to rid the country of Nazi influences has reached its 33rd day, while supply concerns are still high in the energy markets.
In addition to the suspension of the Nord Stream 2 project, the negotiations have not yet yielded any concrete results, and 14-year highs have been observed in oil prices, which have been rising sharply as a result of the harsh sanctions imposed by western countries against Russia due to the invasion of Ukraine.
However, at the moment, volatility has increased somewhat due to Covid-19 news and meetings of Russian–Ukrainian delegations. First of all, in China, which has implemented a zero Covid policy, in the face of coronavirus cases that have recently recorded a serious increase, a nine-day two-stage quarantine was implemented in Shanghai, known as the financial center of the country with a population of about 27 million.
Restrictions in China, which has more than 27 percent of the world's manufacturing industry and is the largest oil consumer, have caused demand concerns and the oil market lost almost 7 percent.
On the other hand, the fact that the United Arab Emirates (UAE) has invested to increase its production capacity to over 5 million barrels is also a negative factor here. Still, the ministerial group at the OPEC+ meeting to be held on Thursday, will stick to their May plans despite the increase in prices due to the Ukraine crisis and the demand for more supply by consumers. And this is a strong obstacle to the decline in prices.
In addition, supply concerns caused by the Russia –Ukraine war have not yet been taken off the table. While there are no specific results from the meeting of the Russian and Ukrainian negotiating delegations held today in Istanbul, geopolitical risks have a significant impact on the pricing.
In other words, although the OPEC+ and China developments have created a minor retracement in the oil market, we believe that upward pricing will outweigh the energy market unless the supply concerns caused by geopolitical risks are taken off the table.
Considering that even in the case of a positive path in the talks on the Russia-Ukraine line, the sanctions imposed by western countries on Russia will not be lifted directly and the Russian economy, which has been hit hard by the sanctions, will have difficulty in recovering, the pullbacks in the oil market may create new opportunities for long positions.
In addition to the suspension of the Nord Stream 2 project, the negotiations have not yet yielded any concrete results, and 14-year highs have been observed in oil prices, which have been rising sharply as a result of the harsh sanctions imposed by western countries against Russia due to the invasion of Ukraine.
However, at the moment, volatility has increased somewhat due to Covid-19 news and meetings of Russian–Ukrainian delegations. First of all, in China, which has implemented a zero Covid policy, in the face of coronavirus cases that have recently recorded a serious increase, a nine-day two-stage quarantine was implemented in Shanghai, known as the financial center of the country with a population of about 27 million.
Restrictions in China, which has more than 27 percent of the world's manufacturing industry and is the largest oil consumer, have caused demand concerns and the oil market lost almost 7 percent.
On the other hand, the fact that the United Arab Emirates (UAE) has invested to increase its production capacity to over 5 million barrels is also a negative factor here. Still, the ministerial group at the OPEC+ meeting to be held on Thursday, will stick to their May plans despite the increase in prices due to the Ukraine crisis and the demand for more supply by consumers. And this is a strong obstacle to the decline in prices.
In addition, supply concerns caused by the Russia –Ukraine war have not yet been taken off the table. While there are no specific results from the meeting of the Russian and Ukrainian negotiating delegations held today in Istanbul, geopolitical risks have a significant impact on the pricing.
In other words, although the OPEC+ and China developments have created a minor retracement in the oil market, we believe that upward pricing will outweigh the energy market unless the supply concerns caused by geopolitical risks are taken off the table.
Considering that even in the case of a positive path in the talks on the Russia-Ukraine line, the sanctions imposed by western countries on Russia will not be lifted directly and the Russian economy, which has been hit hard by the sanctions, will have difficulty in recovering, the pullbacks in the oil market may create new opportunities for long positions.
