16.05.202223:48 Forex Analysis & Reviews: Oil is getting cheaper. The European Union predicts high inflation and slow economic growth

Oil is getting cheaper due to the rapid decline in economic activity in China, where large cities are still under tight quarantine restrictions.

July futures for Brent on London's ICE Futures stood at $110.92 per barrel, down 0.56% from the closing price of the previous trading session. The price of futures for WTI oil for June in electronic trading on the New York Mercantile Exchange by this time fell to $110.13 per barrel. By the way, following last week's results, the reference brand Brent has risen in price by 0.8%, and WTI - by 0.7%.

China's industrial production fell in April for the first time since March 2020, according to the latest statistics. The fall in retail sales also became a record since the same period. And since China is the world's largest oil importer, it becomes obvious that such a significant decline in the Chinese economy risks significantly reducing the demand for energy resources in the global plan.

At the same time, the political elites of the EU countries are meeting in Brussels on Monday to discuss the next package of sanctions against Russia. As practice has shown, not all European countries are ready to unequivocally support the decision of the European Commission and abruptly abandon Russian oil. For example, Hungary categorically cannot afford this, which insists on extending the period of transition to other sources of supplies or excluding its voice from the package of anti-Russian sanctions. A number of other states, including Bulgaria, are not completely ready to give up Russian oil either. In this regard, some EU members are ready to make concessions to these countries and consider the possibility of postponing the introduction of a ban on the import of raw materials from Russia.

Germany among its neighbors in the bloc turned out to be the most categorical and seriously intends to stop importing oil from Russia by the end of this year. Moreover, its decision on this issue is unshakable and does not depend on whether the EU can coordinate its plans to impose an embargo or not. Even here it will not do without some difficulties. For example, the refinery in Schwedt is highly dependent on Rosneft, as it operates on raw materials from Russia received through the Druzhba pipeline. The activity of this plant is aimed at enriching the entire east of Germany with oil products.

As of today, it is known that the EU foreign ministers are still unable to unblock the issue of the oil embargo against Russia. Thus, the leader of European diplomacy, Josep Borrell, said that the heads of the EU foreign ministries could not implement their plan to embargo Russian oil because of irresolvable differences within the alliance. By the way, earlier German Foreign Minister Annalena Burbock confidently stated that the decision on the refusal of the European Union from oil from Russia under the sixth package of sanctions would be made in a matter of days.

While the countries of the bloc are trying to find a consensus on this issue, the website of the European Commission published a document in which it prescribed the baseline scenario for the EC's spring economic forecast for 2022-2023. Interestingly, this document did not include a ban on the import of Russian oil. The trade policy outlook included only those trade measures that were in place through April 29, 2022.

So, the scenario compiled by the EU analysts implies the further preservation of the trends that exist today in the energy market. According to the document, the average annual price of Brent crude oil this year will maintain its positions on the charts within the level of $103.6. According to European analysts, next year the average price of Brent should still fall to $93.5.

It is also noteworthy that in the published forecast, the EC almost doubled its forecast for inflation in the countries of the alliance this year - from 3.5% (autumn forecast) to a record 6.1%. The forecast for economic growth this year was also lowered - from 4% to 2.7%, and next year - from 2.8% to 2.3%.