Oil could drop to $90 if inflation continues

The price of crude oil could drop to $90 a barrel if the economies of the world’s two largest consumers continue to struggle with growth, the chairman of Bharat Petroleum told the Economic Times.

“Prices could reach $90 in two months if the US continues with inflation and low growth and China is unable to find solutions to its economic problems. Economic problems in these two countries could affect demand,” said Arun Kumar.

At the same time, however, Kumar suggested that oil demand could be supported by record high natural gas prices, prompting industrial consumers to switch to oil-fired generation.

Indeed, the German city of Munich last week restarted the oil-burning plants of two power plants in a bid to cut gas consumption in line with the EC’s plan to cut gas consumption across the European Union by 15 percent.

As of August 1, natural gas in Europe was trading at more than $199 per MWh, which was lower than the peak reached in March this year, but still unaffordable for many gas consumers.

Meanwhile, oil prices have been moderated recently by economic concerns as several analysts and politicians debate whether the US has entered a recession or whether the definition of a recession should be revised. Nobel laureate Paul Krugman suggested that the word “recession” was irrelevant.

However, it still seems relevant to oil traders. Concerns over the US and China were also the main reason for the latest drop in oil prices, along with anticipation of this week’s OPEC+ meeting.

The expanded cartel met in Vienna today to discuss production for September. The group decided to slightly increase production targets for September by 100,000 bpd. With a compliance rate above 300%, OPEC+ is unlikely to achieve that target.

Meanwhile, “Russian production is unlikely to fall any time soon and so overall global oil supply will remain unaffected in the coming months,” the chairman of Bharat Petroleum also noted.

By Irina Slav for Oilprice.com

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