Could oil drop to $60 a barrel? Here’s a look at what changes crude prices

The worldwide monetary system is still a major factor affecting the oil industry, including the progress of China. Image: Getty.

What factors are influencing the fluctuation of oil prices, and is it possible for crude to decrease to $60 (£47.10) per barrel? Oil prices have remained relatively stable at the start of the week. However, on Tuesday, there was a decline in oil prices due to China's announcement of not meeting the expected benchmark lending rates. This has resulted in worries about the demand for oil in the world's leading importer.

The People's Bank of China, which is the central bank of China, has reduced its loan prime rates for one-year and five-year terms by 10 basis points each. This move is significant because it's the first time they have done so since August 2022. The intention behind this action is to aid their struggling economy.

Citi and Goldman Sachs have lowered their predictions for the economy of the nation due to the challenging macroeconomic conditions. This decision comes after JP Morgan, UBS, and Bank of America also decreased their estimates for the nation's economic performance.

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The latest move from OPEC+ to expand the cuts in crude supply sent some relief to oil prices, alongside the cuts made by Saudi Arabia. Despite this, the overall state of the global economy continues to pose a major risk for the oil industry.

According to Osama Rizvi, an economist and oil analyst at Primary Vision Network, the outlook for oil prices is not positive. Rizvi thinks that crude oil could decrease all the way down to $60 per barrel. This information was shared with Yahoo Finance.

This is what he suggested that investors keep an eye on as it could lead to a change in oil prices.

The OPEC+ team made a decision on June 4th to continue cutting crude production all the way through 2024. The group is currently keeping production levels at 3.66 million bpd, which is 3.6% of the total amount the world needs.

On that particular day, Saudi Arabia declared a self-imposed reduction in production by one million barrels per day (bpd) starting in July. This decision results in Saudi Arabia producing the least amount of oil in the past few years.

Many analysts believed that the cuts might result in higher oil prices, but there were also other factors, like Chinese demand, that could be more significant than the cartel's attempts to increase prices.

In my opinion, the cost of oil is likely to decline as it seems to be decreasing for various reasons. The OPEC+ reductions indicate that OPEC and Saudi Arabia acknowledge that the consumption of oil will not increase in the coming days, which shows a strategic acceptance. This concession is the primary reason behind the decreasing trend in oil rates.

According to the analyst, there is another supporting element for this claim - the rising apprehension of a recession. This worry has escalated in the wake of Europe, New Zealand, and Germany all having entered into a recession.

Some time ago, the economic signals in America had all taken a dip. If you examine the ICM's manufacturing non-manufacturing measures, examine the industry's supplied and used electricity, or other earnings metrics, you can see that they all indicate that negative economic conditions are accumulating," stated Rizvi.

The economist, Nouriel Roubini, who is famous for his pessimistic outlook on the economy, reiterated his alarming predictions regarding the United States. He stated that the country is on a path towards a financial downturn as a result of increasing interest rates, enduring inflation, and a restriction in credit availability.

In an interview with Yahoo Finance, the professor from NYU stated that there is a greater chance of a difficult economic situation, where there are two consecutive quarters of negative growth, rather than a smooth and gradual decline.

According to Roubini, the economy is experiencing a deceleration, and as a result, the Federal Reserve has increased interest rates. In his opinion, the rates will need to go up even more because inflation remains too elevated. This includes both wage and core inflation.

According to Rizvi, there's an additional factor that can be considered alongside the lower Chinese demand.

According to Rizvi, the re-opening of China after the pandemic lockdown was expected to boost the demand for oil worldwide. However, things took a different turn as China's economic data continues to disappoint with PMI indices indicating a contraction of below 50. Additionally, climate change has caused a decrease in precipitation rates in China, putting the country through a lot of problems.

Additionally, he observed that there has been a decrease in China's credit impulse. This is of interest to investors as it serves as a gauge of economic activity by measuring the alterations in new credit or bank lending in relation to the gross domestic product.

According to him, there has been a decrease in the credit impulse for the three most significant economies in the world. This implies that the current state of the global economy may not result in high demand for oil.

Finally, the oil expert observed the agreement with Iran, which is still undergoing negotiations and has not been reinstated yet.

The markets are now seeing a resurgence of Iranian oil being sold, even after the sanctions imposed by the US. They've made sales of 1.6 billion barrels, which is the most it's been since 2018, when it totaled 2.5 million barrels. Iran is producing 3 million barrels per day, and even more according to some sources. However, there seems to be a problem where the supply is more significant than the demand. With a surplus of oil to go around, it's creating a situation where supply outweighs demand. This issue is made even more drastic considering that Venezuelan oil is also being sold in the market. Rizvi believes that these factors are contributing to the oversupply seen in the oil market.

He also mentioned that the Russian oil sector has remained strong until now.

The oil prices have remained steady. Therefore, I believe that with all these factors combined, there will be a decrease in the oil prices. It is possible that the oil prices may fall to approximately $60 per barrel by the end of this year, as per my conclusion.

Discover more: The Bank of England is anticipated to increase interest rates up to 5% following a surprise spike in inflation.

Keep in mind, what happened in the past does not necessarily predict what will happen in the future.

Conduct thorough research on your own and never forget that your choice to engage in trading is influenced by your approach towards risk-taking, your proficiency in this field, the diversification of your investment portfolio, and your willingness to potentially incur losses.

In addition, it is important to only trade within your financial limits and avoid risking more than you are comfortable losing.

Take a look: Is it possible for the price of oil to drop below $60? Let's take a closer look at the factors that are affecting the value of crude oil.

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