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Oil prices on Monday

Oil prices increased on July 22. The price of Brent crude oil rose by $1.41 or 2.26% to $63.88 a barrel. Another benchmark which is West Texas Intermediate (WTI) also strengthened its position and increased by $1.13 or 2.03% to $56.76 a barrel. It is an interesting fact that during the previous week the price of both benchmarks fell by more than 5%. In the case of WTI price reduced by over 7% and the price of Brent fell by more than 6%. There are several issues which influenced the oil prices and oil market in general.

Even though oil prices rose on Monday, oil market struggles to maintain the current prices. People from around the world became familiar with the geography of the Middle East and Strait of Hormuz in particular due to regional tensions. This strait is a strategic place as 20% of oil supplies goes through this region. Every day 20 million barrels per day which account about a third of oil traded globally is passing through this strait. It means that incidents, especially between the U.S. and Iran, might escalate the situation.

Unfortunately, another incident took place in the Middle East. This time Iran seized U.K. flagged tanker Stena Impero and inspected another tanker. This incident is a reminder that the situation remains tense. Iran kept its word when it said that there would consequence for seizing the tanker with Iranian oil on board. Prime Minister Theresa May will discuss this issue during a Cabinet Office Briefing Rooms (COBR) meeting on Monday. Such incidents are dangerous as military confrontation would derail the oil market.

Oil prices on July 22 and the global economyOil market is trying to adjust to weaker demand due to economic problems

Geopolitical tensions are essential when talking about oil prices, but there are other relevant issues. The global economy is slowing down, and this is not news oil market is looking for due to various reasons. The International Energy Agency (IEA) lowered the oil demand growth forecast from 1.2 million barrels per day (bpd) to 1.1 million bpd for 2019. Last year, IEA predicted that the oil market would grow by 1.5 million bpd. However, the organization had to reduce the daily growth by 300,000 bpd in 2019.  The head of IEA Fatih Birol gave an interview to Reuters several days ago. He said that due to China’s economic problems, they could alter their forecasts once again in the next months.

Another problem is that according to the International Monetary Fund, the global economy is slowing down. This year the economy will grow less than 3%. This brings us to another issue, which is that supply is exceeding the demand. At a time when demand is weak major oil producers such as the U.S. are increasing the daily production by 1.8 million. However, this number was higher in 2018 when the U.S. raised the output by 2.2 million barrels per day.

The oil market continues to reflect on market instability. Oil prices increased on July 22, but it is hard to tell for how long this will continue during the upcoming days. Analysts will watch closely on how the situation will unfold on Monday. British government might impose sanctions on Iran.

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