Energy expert Dan Yergin said there are two reasons why oil prices have dropped in the past month despite a market that is still tight: the Fed and Russia’s war in Ukraine.
Oil prices had been increasing since last year, spiking to highs after Russia launched an unprovoked war on Ukraine. But since the end of May, Brent has fallen from over $120 per barrel to last trade at around $109, or around 10% lower. West Texas Intermediate futures have tumbled more than 9% in the same period.
Yergin, vice chairman of S&P Global, said the U.S. Federal Reserve is choosing to go after inflation even at the risk of tilting the economy into a recession, and that’s “what’s easing its way into the oil price.”
On Wednesday, Federal Reserve Chairman Jerome Powell told lawmakers the central bank is determined to bring down inflation, even though he acknowledged a recession could happen. Achieving a “soft landing,” in which policy tightens without severe economic circumstances such as a recession, will be difficult, he said.
“The other side of it … is that Vladimir Putin has widened the war from a battlefield war in Ukraine to an economic war in Europe, where he’s trying to create hardships that will break the coalition,” Yergin told CNBC’s “Squawk Box Asia” on Friday.
Russia has limited gas supplies to Europe via the Nord Stream 1 pipeline and reduced flows to Italy. Moscow has cut gas supplies to Finland, Poland, Bulgaria, Denmark’s Orsted, Dutch firm GasTerra and energy giant Shell for its German contracts, all over a gas-for-rubles payment dispute.
Those actions have stoked fears of a difficult winter in Europe. Authorities in the region are now scrambling to fill underground storage with natural gas supplies.
Yergin said the demand outlook for…