Oil prices dropped Thursday to a near 6-month low, their weakest levels since prior to the Russia invasion on Ukraine. This was largely due to the concerning economic weakness in the United States and to Europe decreasing demand, but then prices seesawed as the market tightened supply. The demand outlook remains cloudy for the foreseeable future as OPEC+ agreed to raise its output by 100,000 barrels per day in September; that’s a whopping 0.1% of global demand.
OPEC+ is currently facing two major issues that are impacting the global oil market. First, the market is focused on declining demand due to the economic slowdown while trying to account for the impact of Russian crude within the market. Second OPEC+ is struggling to produce as much oil as it had promised. OPEC+ is 1.7 million bpd under production from what was planned for this year, and leading market watchers are focusing on what they do instead of what they plan to do.
Economic sanctions against Russia started with considerable fanfare, but with low supply levels and high demand of crude, Russian exports continue to produce critical revenue for Russia. The Biden Administration is pushing for caps on oil prices for Russian energy exports to reduce profits instead of reducing exported volume. Treasury secretary Janet L. Yellen, says, “this proposal will advance our twin goals of sharply reducing Russian revenue and stabilizing global energy prices.”