LONDON: Oil prices have dropped by a quarter since June and could fall further if a nuclear deal is reached with Iran as it would bring more crude to the market, yet inflation remains stubbornly high.

Crude prices soared to $140 per barrel in early March after Moscow invaded Ukraine, raising fears that Western sanctions would drastically cut supplies from Russia, a major producer and exporter.

But traders are now concerned about demand due to various factors, including fears of recession, a strong dollar and weak Chinese oil imports during the country’s Covid lockdowns, said Giov­a­nni Staunovo, commodities analyst at UBS bank.

Oil prices are set in dollars, so any rise in the currency makes barrels more expensive for importers using other currencies.

In China, “oil demand has taken a hit as processing of crude imports were weak in July” although stockpiles still rose, said Geordie Wilkes, analyst at Sucden.

The price of Brent, the international benchmark, has dropped to $95 while WTI, the main US contract, is at around $90 — and fuel prices at the pump have fallen in the United States.

But UBS expects Brent prices to climb back to around $125 by the end of the year as Russia exports fall, Chinese imports rise and Western countries stop tapping their strategic reser­ves, Staunovo said.

Published in Dawn, August 19th, 2022