Oil prices expected to return to normal in coming weeks

Oman Saturday 25/March/2023 15:55 PM
By: Times News Service
Oil prices expected to return to normal in coming weeks
The collapse of large financial institutions affected oil prices directly.

Muscat: A number of experts and economic analysts expect that oil prices will return to normal in the coming weeks, after witnessing a decline due to fears of an expected financial crisis, owing to the recent banking crisis in the United States (US) and Europe.

Ali bin Abdullah Al-Riyami, an expert in oil and gas marketing, explained that oil prices began to drop dramatically a week ago, from about $85 per barrel, until they reached $65 per barrel.

In addition, Al-Riyami elaborated that the collapse of large financial institutions affected oil prices directly, as many investors dealing in the energy sector in general, and the oil sector in particular, are closely linked to the banking sector through financial liquidity, loans or financial coverage for oil companies. With the news of the collapse, dealers felt a lack of confidence in dealing with banks, and a fear of other collapses in other banks. This led to a reduction in dealing with banks and, consequently, a drop in oil prices.

Al Riyami said: "I do not rule out that there will be attempts by the US administration and Swiss government to find solutions to the collapse of these banks, through direct intervention in supporting them, change of regulations and laws in the US banking system, and the desire of some major financial institutions to buy Credit Suisse UBS. One of the major Swiss institutions expressed its interest in purchasing this bank, in addition to the intervention of the Swiss government in supporting Credit Suisse. "

Furthermore, Al-Riyami indicated that these attempts constitute a concern for those dealing with the oil market, as it is closely linked to banks, and all the dealings of traders, exporters and suppliers of oil with international banks. Any impact on these banks will be affected by other markets, including the oil market.

Ali Al-Riyami believes that oil prices fluctuate. During the previous period, as prices rose slightly due to the attention directed to the position of the US Federal Bank regarding increasing interest rates to counter inflation. On this basis, it is likely that this fluctuation will continue for the coming period, especially if other banks may enter into a spiral of collapse.

"Recently, we have witnessed the presence of government attempts to support banks, with expectations that prices at the beginning of trading during the coming weeks will record a balance in the issue of decline," Al-Riyami said.

On the impact of Omani oil, Ali Al-Riyami indicated that the impact is direct for any shock in the global oil markets, as Omani oil circulates in the markets freely and is considered a reference for some types of oil in the region. Therefore, it is directly affected by any global shock on oil prices, and any problem in oil in general. This is a natural correlation and decline balanced with global oil prices.

Al-Riyami predicted that oil prices would drop to $65 per barrel and then start to rise to a limited extent.

Dr. Ahmed bin Khamis Al-Hadi, an academic at Sultan Qaboos University, explained that the recent decline in oil prices is not due to the foundations of demand and supply, but rather due to fear of an expected financial crisis resulting from the recent banking crisis in the US and Europe, expecting that prices will slowly rise again and stabilise slightly until the completion of the recovery cycle.

Al-Hadi pointed out that the rise in oil will be gradual, driven by some measures taken in the US, the gradual return of confidence among investors and the increase in demand from some economies such as China, according to the expectations that OPEC announced in 2023.