The Economist – Mexico City
The raw material suffered in the eighth month of the year its worst monthly fall since November of last year, pressured downward mainly by fears that a economic slowdown cause a reduction in demand.
The US benchmark West Texas Intermediate (WTI) had a monthly decline of 9.20%, closing August at US$89.55 per barrel. North Sea Brent sank 12.29% to $96.49 a barrel.
The Mexican export mix closed the eighth month with a loss of 12.58%, at US$85.96 a barrel.
“Weakness coming out of China has played a big role” in driving down prices, said Harry Altham, energy analyst for EMEA and Asia at StoneX Group. “There are fears of demand destruction in the West as interest rates rise and inflation concerns take hold in Western economies.”
Gabriela Siller, director of Economic Analysis at Banco Base, commented in a note that the August losses were “limited”, since global markets face a high risk of scarcity before the arrival of winter in the West. “There are fears that the energy crisis in Europe could get worse,” she said.
After the start of the war between Russia and Ukraine (on February 24), crude oil prices hit a year high on March 8 above US$127 per barrel, amid concerns that there would be shortages due to sanctions imposed by the West on Moscow.
However, supply concerns have eased as production has increased.
Both the Organization of the Petroleum Exporting Countries (OPEC) and the United States saw production hit their highest levels since the early days of the coronavirus pandemic in the most recent month, at 29.6 and 11.82 million barrels a day, respectively, according to a Reuters poll.
Since the highs of March, WTI has fallen 27.61%, Brent is down 25.27%, while the Mexican mix has dropped 28.14%. Despite this, in the year they still rebound more than 20 percent.
Gabriela Siller mentioned that “going forward, volatility is expected to persist, as supply shortages continue, as well as international risks, including the possibility of a global recession, inflationary pressures, mobility restrictions in China and the war in Ukraine.
He said that the market will be attentive to the possibility that OPEC and its allies (OPEC+) reach an agreement to cut production and thus stabilize commodity prices, “especially if a nuclear agreement is reached with Iran, a country that could increase its production between 1.3 and 1.4 million barrels per day in the following 6 to 9 months”.
Gasoline goes down too.
The drop in crude oil in August caused a drop in gasoline prices in the United States, to the extent that wholesale fuel in that country fell to pre-war levels on Wednesday.
At points of sale, regular gasoline closed August with an average weekly price of US$3,691 per gallon, a reduction of 11.76% compared to the end of July, according to data from the United States Energy Information Administration (EIA).
The gallon of reformulated gasoline fell 11.41% in the eighth month compared to July, to US$4,121 per gallon.