Bottlenecks developed in oil production and refining, triggering a significant price increase (Photo: AFP/Paul Ellis)
Zsuzsa Hernádi
18/02/2023 05:00
The European Union has still not recovered from the economic impacts of the coronavirus pandemic, the hoped-for V-shaped path of rapid recovery has not materialised, and important macroeconomic parameters are still below pre-crisis levels. Inflation, which has risen because of disrupted supply chains, has been exacerbated by the war between Russia and the Ukraine, to which the EU has responded with more and more sanctions packages.
The price of oil on the world market is mainly determined by supply and demand. Once the restrictions caused by the pandemic were lifted, demand for petroleum-derived diesel and petrol increased enormously. Supply could not keep up, as freight, transport, agriculture and the chemicals industry, which is a major user of oil, also tried to catch up. Bottlenecks developed in oil production and refining, triggering a significant price increase. This process was exacerbated by supply concerns at the start of the Russian-Ukrainian war, and then by EU proposals to restrict oil imports.
The G7 — the United States, Canada, France, Germany, Italy, Great Britain and Japan — recently agreed to set a price cap on oil imports from Russia. They want the proposal to be adopted by the European Union and then by the world's major oil-importing powers.
Hungary has already indicated that it does not support the plan, but so have China and India, which have become the biggest buyers of Russian oil.
In contrast to the trend thus far, however, the fall in international oil prices has been a cause for concern in recent weeks. For example, the price of North Sea Brent has fallen below USD 94 per barrel, the lowest level since the outbreak of the war. But this is only seemingly good news, according to Christoph Mertens, a member of the executive committee of Fürst Fugger Privatbank.
“The reasons for the price drop are complex, currently based on market participants' concerns about a recession. When oil prices are high, the economy booms. But if it turns into a recession, the price of oil will collapse,” says the expert, who believes that the August drop in oil prices already reflects a downturn in the performance of the global economy.