Market Remains Surprised by Sharp Pullback in Oil Prices

Market Remains Surprised by Sharp Pullback in Oil Prices
One of Rigzone's regular market watchers looks at oil price trends, the drivers of price weakness, the start of European sanctions on Russian crude and more.

(The views and opinions expressed in this article are those of the attributed sources and do not necessarily reflect the position of Rigzone or the author.)

In this week’s edition of oil and gas industry hits and misses, one of Rigzone’s regular market watchers looks at oil price trends, the drivers of price weakness, the start of European sanctions on Russian crude and more. Read on for more detail.

Rigzone: What were some market expectations that actually occurred during the past week – and which expectations did not?

Vikas Dwivedi, Global Oil and Gas Strategist for Macquarie Group: The start of European sanctions on Russian crude oil and the implementation of the price cap started this week. The market did not give much credit in terms of higher pricing to the supply risk posed by the sanctions. In our view, the lack of positive price action is consistent with the market’s expectations that the European sanctions will be manageable, and the global oil market will adjust to normalize oil flows in a timely manner. 

Rigzone: What were some market surprises?

Dwivedi: The market remains surprised by the sharp pullback in prices, a trend that has been consistently occurring since June 2022. In contrast, we have been bearish on oil all year long and the recent price action is consistent with our view that surpluses would drive oil prices lower. The drivers of the price weakness are largely a function of supply growth, including large sources of light-sweet crude from the U.S., West Africa and the North Sea. In our view, many market participants are having trouble reconciling the recent price action with the narrative that structural underinvestment in the upstream should create tight, bullish markets. The issue in our view is that the underinvestment narrative is incorrect. Our analysis indicates that investment has been adequate and oil production growth around the world should not be surprising. 

To contact the author, email andreas.exarheas@rigzone.com



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