Oil price still reflects the premium which got priced in at the start of the Russian invasion of Ukraine. Recently, there has been some moderation in oil prices of about 15 % in the last two weeks. This fall in prices is occasioned by a record increase in US crude production which touched 12 million barrels per day. This is the highest level since 2020. Further, the number of active rigs has also gone up in the recent past indicating a rise in production and supply in future. Apart from the unrest in Libya and the ongoing Russia-Ukraine conflict, there are more fundamental reasons why oil prices could moderate further. The high crude prices and the adverse impact on demand, and the estimates of an economic recession, in the view of IEA, are two tactors that could matter in the medium to long term. There are certain signals that the pre-pandemic levels of oil demand which was reached in Sept-Oct 2021, may now be possible only sometime in 2023, mainly due to the negative macro developments. The OPEC decision to expand supply as soon as July to 648,000 barrels per day could also be a factor influencing the price. Part of the improving prices could be attributed to the appreciation of the US Dollar against currency majors, and this may have more decisive impact on the future direction of prices. The most crucial level for Brent is the US$ 106-US$ 107 levels, as a break of these levels could see the prices edging lower. But it may be while before we could see these changes, though there is some activity in oil futures that seems to be indicating that some correction may be on the way.
