Nov 29, 2022 - Economy

Oil prices are back near pre-Ukraine war levels

Illustration of an oil barrel spilling oil, forming an erratic line chart.

Illustration: Shoshana Gordon/Axios

U.S. oil prices briefly fell to their lowest level since 2021 on Monday, as investors braced for a further slowdown in China's economy.

Why it matters: The surprising decline in energy prices over the last few months should further ease inflation pressures, potentially setting up the Fed — and other central banks — to slow the interest rate hikes that hammered markets this year.

The big picture: Six months back, the world seemed at risk of running dangerously short of oil and gas, due to Russia's attack on Ukraine. Now, oil prices are back to pre-war levels and prices at the pump are falling.

  • In June, U.S. gasoline prices topped $5 a gallon for the first time. Now they're a bit higher than $3.50.
  • Benchmark U.S. crude oil — the West Texas Intermediate futures contract price — was more than $120 a barrel that month, prompting a series of releases from the U.S. Strategic Petroleum Reserve. Now they're almost 40% less, touching sub-$74 levels on Monday before rebounding slightly.
  • In Europe, prices for natural gas — which Russia largely supplied — soared to records in August, as nations rushed to stockpile gas supplies for winter. They're down 60% since then.

State of play: The tumble is tied to the situation in China, where drastic COVID-related lockdowns of major urban centers — and a rash of protests in response — have upended the economy, potentially adding to the drag on economic growth this year.

  • Meanwhile, in Europe, governments stockpiled Russian gas while they still could and tapped new sources of liquified natural gas. Conservation efforts cut usage and a lucky stretch of mild weather reduced heating demand. There's likely enough stockpiled to get through the winter now.
  • In the U.S., oil prices — tightly tied to expectations of global growth — first slumped as expectations for a recession in Europe, and to a lesser extent, the U.S. itself grew in recent months.

What we're watching: The Dec. 4 meeting of OPEC and its partner Russia in Vienna, and whether the powerful oil cartel will cut production to try to keep oil prices from dropping more.

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