Oil prices are rising after multiple threats to the global economy have weighed on them, resulting in a rise in global oil demand. International Monetary Fund Managing Director Kristalina Georgieva, however, reaffirms that while she does not anticipate a recession, she cannot rule it out either. As the world’s largest economies approach peak driving season, oil prices are likely to remain high.
EU leaders are currently haggling over the terms of an oil embargo against Russia, which requires unanimous support. The EU is unlikely to support the sanctions unless Hungary supports them, however. Hungarian officials have also voiced their opposition to the embargo because of the disruption it would cause to their economies. This week, jitters have pushed financial markets and oil prices higher. The rise in interest rates and stronger U.S. dollar has added to inflation fears. Also weighing on oil prices is the prospect of recession in the U.S. and Europe’s move toward an oil embargo on Russian oil.
In the United States, headline CPI rose 8.3 percent in April, which has fueled concerns that high oil prices will hinder economic growth and lower growth in the U.S. Despite the recent economic worries, Americans are again getting behind the wheel in large numbers due to the high cost of fuel. Moreover, a recent pandemic of COVID-19, a respiratory disease, has caused demand to rebound. On top of this, supply problems have also been a big factor.
The new French foreign minister, Catherine Colonna, is confident that the opposition to a new EU sanctions package can be persuaded. The new sanctions package would gradually phase out Russian oil imports to the EU, while tightening global supply. In addition, the US is set to have its busiest Memorial Day holiday weekend in two years, boosting fuel demand. The new French foreign minister is optimistic about European Union sanctions on Russia. While some quarters are concerned about the sanctions, Michel is confident of a final agreement by May 30.
As for the Chinese reopening and continued efforts to end the Russian oil embargo, these factors swayed the oil market toward a more positive zone. While Shanghai’s announcement of the first new COVID 19 case outside the quarantined zone has no impact on the government’s plans to lift the lockdown, it is still likely to lift the restrictions. With these two factors, oil prices will rebound as the demand for fuel will increase.
In addition, US President-elect Joe Biden pledges to take aggressive action on climate change. He rejoins the Paris Agreement and pledges to cut U.S. emissions by 50% by 2030 and achieve net zero by 2050. However, this doesn’t mean the end of the global oil glut. However, the embargo will allow for a more stable oil price, as the US will release another thirty million barrels of oil to counter the short-term impact on the global economy.