International oil prices have fallen 23% from their highest level so far this year, weighed down by concerns about a drop in demand in the face of an economic slowdown, greater supply from producing countries and the confinement by COVID-19 in China, one of the main consumers of crude oil worldwide.
On Thursday, the price of West Texas Intermediate (WTI) closed at 96.14 dollars per barrel, while Brent ended with a price of 99.5 dollars per barrel, with this both crude references already show a decrease of 22.3% and 23%, respectively , from the highest point of the year that was on March 8. With what they erase the rises generated after Russia invaded Ukraine at the end of February.
Arturo Carranza, an expert in energy matters, said that the recent reduction in oil prices is explained by the expected increase in oil production this year by OPEC and its allies, due to a historic increase in oil extraction from the United States. United States and by the prospect of lower global economic growth that would affect oil demand.
Another of the main problems is that China maintains confinements due to the increase in infections, due to its ‘Zero COVID’ policy.
“If there are still contagions, we could see some confinements again in some regions, including China, one of the countries with the highest oil consumption, as it would have a direct effect on the demand side for hydrocarbons,” said Alejandro Saldaña, an economist at head of Grupo Financiero Ve por Más.
The volatility that was seen in the price of oil is also a consequence of a strategy that the president of the United States, Joe Biden, is carrying out with the Middle East, said Ramsés Pech, an analyst and adviser to the energy industry.
“Given the situation that the prices of regular gasoline did not drop and in the face of the imminent recession in the United States, they used the financial markets. Returning tangible to the uncertainty of the recession, releasing the bull to see what happened. When issuing the letter to the market, fuel prices dropped a few cents, but not enough to be able to help the consumer, and the proposal to remove taxes did not observe any variation in market prices, because it depends on the decisions and votes of the houses of representatives”, he said.
For this reason, he indicated that the US financial market ‘rocked the cradle’ to lower barrel prices, and that it cut prices down to where it wanted them to be.
However, the fall is contained. “The downward revision would have been larger had it not been for the stronger rebound in developing and emerging economies led by China,” said Craig Erlam, an analyst at Oanda.
There are other elements that will prevent the fall from going too far, such as the consequences of the war in Ukraine. “Right now what weighs in recent days is the expectation of lower demand due to an economic slowdown,” said Saldaña.
How does it affect Pemex?
The downward trend in crude prices may have little impact on Pemex’s finances, analysts said. This would be because within the 2022 budget, the estimated average price of the Mexican mixture is close to 92 dollars per barrel, while so far this year it has a price of 97.3 dollars per barrel.
Monserrat Aldave, chief economist at Finamex, pointed out that two possible effects on the finances of the state-owned company must be considered. First at the government level and the income of Pemex. “The Pemex thing has been particularly good, since in previous years the company was highly indebted and was operating in the red, and this year, due to high oil prices, it is benefiting from the expected cash flow. It is even expected that he will be able to pay all his financial obligations with his own resources without the need for government support.”
The specialist added that if the price of oil began to decrease, the company would return to the situation in which it was prior to the rise in oil prices, this means that the good profile of the company this year is due to the increase in prices and not to structural improvements or improvements in operating results.
“Usually we would benefit from low oil prices, this time given the significant inflationary shock, that excess oil income is going to finance the fiscal stimulus program for gasoline. Really, the net excess is not necessarily going to benefit us, it could even be more expensive due to the heavy imports of crude oil that the country makes,” said Aldave.
This Thursday, the Mexican mixture presented a drop of 0.55% to end a price of 90.87 dollars per barrel, its lowest level since February 24, 2022.
“The uncertainty in the oil market represents an element that will complicate the execution of the exploration and production program of Petróleos Mexicanos. Given the current situation, the company will have to evaluate which projects entail fewer risks in their execution and, based on this evaluation, direct efforts towards those that entail less technical and operational risks,” Carranza declared.
In addition, the analyst pointed out that Pemex is likely to seek to modify its strategy for selling oil abroad so that, now that prices are falling, it reduces its imports and at the same time increases the oil load it injects into the National Refining System. .
