In early October, Opec + production cuts had sent oil prices soaring, and by mid-October, fears of a recession in Europe and the United States began to overshadow the oil market.

On October 14, international oil prices fell more than 3%, as of the end of the day, the New York Mercantile Exchange for November delivery light crude oil futures prices fell 3.93%, closed at $85.61 per barrel, a week down 7.58%; London Brent crude for December delivery fell 3.11% to settle at $91.63 a barrel, down 6.42% for the week.

On the other hand, while demand concerns are bearish for international oil prices, there is still good fundamental support for international oil prices as oil producers continue to defend the decision to cut production.

On October 15, the Secretary-General of the Organization of Arab Petroleum Exporting Countries (OAPEC) issued a statement saying that the "Opec +" oil production cut is the right decision at the right time, and the decision takes into account the uncertainty of the global economy.

On October 16, Opec Secretary General Haytham Gass again stressed that the oil market is in a period of intense volatility, and the goal of Opec and non-OPEC producers is to keep the oil market stable.

Recession fears rise amid US rate hike

As stubborn inflation remains stubbornly high, the wave of central bank tightening in Europe and the United States has intensified, and recession fears have soared.

On October 13, the data released by the US Bureau of Labor Statistics showed that the US CPI rose 8.2% in September, only down 0.1 percentage points from August, stronger than the 8.1% expected by economists, and the seventh consecutive month above 8%. Meanwhile, the US core consumer price index rose 6.6 per cent from a year earlier, the fastest pace since 1982 and above economists' average forecast of 6.5 per cent.

Following the inflation data, markets now expect the Fed to raise rates by 75 basis points at each of its remaining two meetings this year. Barclays forecasts a more aggressive pace of Fed rate hikes, forecasting the Fed will raise the federal funds rate by 75 basis points in December, compared with a previous forecast of a 50 basis point increase. In addition, Barclays also expects the Fed to raise rates by 50 basis points at its February 2023 meeting, compared with its previous forecast of 25 basis points. Overall, Barclays expects the Fed funds rate to rise to a range of 5% to 5.25% in February, up 50 basis points from its previous forecast of 4.50% to 4.75%.

Zhao Wei, chief economist of Sinolink Securities, analyzed that in the next two quarters or so, the core contradiction is still the expected revision of the Federal Reserve's end interest rate. After the release of September CPI data, the market fully priced in a November rate hike of 75 basis points, and the expectation of a December rate hike of 75 basis points rose from less than 30% to near 70%. More importantly, market expectations for the end rate level have risen sharply from 4.65% to near 5%, and the 10-year US Treasury yield has broken through 4%. There is still uncertainty about the future level and sustainability of the Fed's target rate.

The U.S. economy is widely expected to officially fall into recession in 2023, and a recession in Europe is all but certain, hitting a wide range of commodities from energy products to industrial metals.

Edward Moya, an analyst at OANDA, said crude oil prices had had a rough week, with the demand outlook hit as concerns grew that high inflation was forcing the Federal Reserve to tighten monetary policy too much. The previous week, oil prices surged on the back of Opec + production cuts, and the latest week was weighed down by a worsening economic outlook in Europe and the United States.

Oil producers are firm in their determination to cut production

In the face of falling oil prices amid recession fears, oil producers have chosen to firmly cut production to defend high prices.

On October 5, the 45th meeting of the Opec Joint Ministerial Monitoring Committee (JMMC) and the 33rd Ministerial meeting of Opec + were held in Vienna, Austria, and decided to lower the total oil production of Opec + by 2 million barrels per day from November 2022.

It should be noted that the decision of Opec + to vigorously reduce production is only about a month away from the midterm elections in the United States, and for US President Joe Biden, who just visited the Middle East not long ago, the Opec + move may lead to another rise in gasoline prices in the United States and the Democratic Party's midterm elections.

So, before Opec + made its final production decision, Biden launched a comprehensive pressure campaign to try to persuade Opec + not to cut oil production significantly at the last minute. But in the end, producers were determined to cut production. U.S. National Security Council spokesman John Kirby said Biden believes the United States should review its relationship with Saudi Arabia in light of the Opec + decision and assess whether it is in the national security interest of the United States.

In response, the Saudi Foreign Ministry also issued a rare long response: The production cut is not a unilateral decision of a country, but the unanimous support of Opec + member states, "purely" based on economic considerations, the goal of the production cut is to maintain the balance between supply and demand in the oil market.

Saudi Arabia also confirmed that the U.S. government had asked the kingdom and other major oil producers to delay by a month their plans to sharply cut crude production starting in November. However, Saudi Arabia refused, and the Saudi government said in the ongoing consultation process with the United States that all economic analysis shows that if the United States proposes to postpone the Opec + production reduction decision by one month, it will have a negative impact on the economy.

Can relatively high oil prices last?

In the short term, concerns about global economic recession are rising, the supply outlook is still uncertain, and the price of oil will not be ruled out in the future under the game of bearish forces. But in the longer term, relatively high oil prices are expected to persist amid supply issues.

After peaking at $750bn in mid-2010, annual investment in oil and gas is now well below $500bn, Bank of America reckons. Those relatively inefficient, decentralized new energy sources are not yet mature, and Europe is more vulnerable. Oil prices are expected to average $100 a barrel next year, meaning energy prices will be about 40 percent higher than in the past decade.

Inflation is also holding back supply. Oil production from US shale oil basins could peak in as little as two years as costs for drillers continue to rise, according to a report this month from Energy Aspects, a UK consultancy. The inflation has prompted at least five producers to consider cutting the number of RIGS they rig, while none is planning a significant increase in production.