Brent Analysis: Crude Oil Is at Lowest Point in Over a Month as US Economy Teeters and Supply Changes

Over the past year, the price of crude oil has been interestingly volatile.

In keeping with other periods in modern history during which the United States has been involved in geopolitical conflicts with regions outside of the Western world, oil prices have been varying with verve and vigour since 2020.

Back in the 1970s, the famous' oil crisis' was caused by members of the OPEC oil-producing nations in the Middle East invoking a trade embargo against the United States following the 1973 Yom Kippur War, which took place between the State of Israel and some of its neighbours.

The result was extremely high oil prices across Western nations, particularly the United States, due to a lack of supply that could not meet the demand and fuel-saving measures such as the introduction of a 55-mile-per-hour speed limit for motor vehicles.

Due to its nature as a consumable commodity, oil is not only a tradeable asset but also an energy product, and the oil-producing nations can use it as a bargaining tool on the political table.

Over the past year, the price of crude oil has varied dramatically due to the trade sanctions placed on the Russian Federation by North American and European nations, which have meant that Russian oil companies have not been able to access their bank accounts in which oil supply is usually settled in such nations, hence the need for Western customers to settle directly in rubles to bank accounts in Russia, or to have to face restricted supplies.

More recently, just one month ago, Saudi Arabian oil giants reported that they intended to scale back oil production by as much as 500,000 barrels per day in an effort to bolster oil prices as part of a large-scale attempt by OPEC+ nations.

The status quo has now largely been accepted, and oil supply has been generally steady worldwide, with price fluctuations now part of the trading landscape and the everyday reality for consumers.

In Britain, the government introduced a 'cost of living allowance,' payable to many members of the public, in order to assist with the ongoing cost of living crisis, in which the cost of fuel to heat homes or drive to work are both important factors.

This week, however, the price of oil has dropped significantly. Brent Crude took a sudden dive in price yesterday from $77.03 per barrel at 8.30 am during the European trading session to $73.60 during the night.

This sudden volatility was preceded by a sharp rise to $77.04 per barrel during the previous night, which represented a short-lived spike before the slump made its presence felt.

Interestingly, the drop in the price of Brent Crude Oil has continued despite the oil inventories in the United States having decreased by 3.939 million barrels during the course of this week, according to data from the American Petroleum Institute.

Some analysts are levelling the cause of this at the possibility of a debt default by the United States, which is currently being discussed by politicians who may look once again at interest rate increases this week.

Should an interest rate rise take place, it would counteract the White House's position early last week when it was considered that inflation had become under control to the extent that any possible interest rate rises in the near future would be ruled out.

Next week, President Joe Biden is set to meet with four US Congress leaders. His position has been anticipated as steadfast in the advent of this meeting, with Mr. Biden understood to have declared that he will not negotiate over the US debt ceiling.

The debt-to-GDP ratio in the United States currently stands at approximately 123%. To give some indication of where that stands on the world stage, the debt to GDP ratio in the United Kingdom is approximately 85%, and in Switzerland, it is 39%.

With oil prices now at a new low, it is worth observing the purchasing patterns of countries with equally good relationships with Europe and Russia with regard to crude oil, such as China, India, Turkey, the United Arab Emirates (UAE), and Singapore.

According to the Centre for Research on Energy and Clean Air (CREA), these five nations are currently engaged in buying oil from Russia's oil giants and then reselling it to European customers. This method of circumventing direct sanctions could ease supply and demand issues further and have an effect on prices.

Looking at the cost to consumers, unleaded fuel for vehicles is approximately 1.49p per litre across the UK at the pumps, whereas this time last year, it was almost £2.

This article represents FXOpen Companies’ opinion only, it should not be construed as an offer, solicitation, or recommendation with respect to FXOpen Companies’ products and services or as financial advice.