Were oil prices signalling a recession? We saw the price of oil drop from almost 90 dollars a barrel to 70. Analysing oil price movements over the last 35 years, we can see that this kind of pattern typically aligns with periods when the economy is approaching a recession.
Based on the fundamentals, we see that demand is indeed declining, but not so much as to signal a major recession. It is true that this time we have the OPEC attempting to balance the oil market by reducing the number of barrels produced. Another key factor is speculator positioning—specifically, the sold oil futures, which are at a peak. This means they are currently net short, marking an all-time high since records exist.
Therefore, even with several factors pushing oil prices downwards, based on the fundamentals, it does not make sense for them to behave as if there were a recession—especially with geopolitical risks still high in oil-producing countries.
Date of report: October 7th 2024