The needle in the oil lowered – NURULLAH GÜR


Oil prices in global markets have fallen over the past three weeks. The price per barrel of oil, which saw a seasonal peak of $ 124, fell to $ 110. In the coming months, the direction of prices will be determined by economic growth.

While it has not yet made itself felt at gas stations, oil prices in global markets have fallen over the past three weeks. The price per barrel of oil, which saw a seasonal peak of $ 124, fell to $ 110. The price is still too high; because in this period last year oil was around 68-69 dollars a barrel. High oil prices are inflaming the pockets of consumers around the world, from Sri Lanka to Pakistan, from Turkey to South Korea, from the United Kingdom to the United States.

These events bring to mind the oil crisis of the 1970s. Hot geopolitical developments in the 1970s (the 1973 Arab-Israeli war and the Iranian revolution) triggered supply shortages and embargoes. In those years, oil prices increased about 4 times and rose to 35 dollars. At today’s prices, $ 35 equates to around $ 120 today. Concern over whether problems like the stagflation of the 1970s and the debt crisis of the early 1980s will repeat themselves have gripped the global economy. The risk of stagflation was not great enough to be considered before the Russian invasion of Ukraine. The war changed the course, as in the 1970s. Stagflation is now a greater risk.

The fact that oil prices have been following a downward trend since June 8 has given policy makers some relief. The most important factor causing this decline is the slowdown in the global economy. Leading indicators in China and the EU point to a slowdown in economies. According to the New York Fed projection, the US economy will land hard with an 80% probability. The slowdown in the global economy means that the demand for oil will decline in the coming months. Oil prices are falling with this expectation. Without the EU’s tough energy sanctions against Russia, oil prices could have dropped even slightly below $ 100. The fact that the picture has not yet been clarified as to where the EU will close the oil deficit that will arise from Russia is holding back the fall in prices. After this phase, there was not much room for Western countries to impose further sanctions against Russia in the field of energy. Therefore, the main factor that will determine the direction of oil prices in the coming months will be economic growth. The level of supply of oil producers, excluding Russia, is another determining factor on prices. The United States is increasing its oil production. But many OPEC countries are not very interested in increasing their oil supply. They want to enjoy high oil revenues, perhaps for the last time, as ready prices have risen at a time when oil life is getting shorter.

The central bank also did not touch the policy rate at this meeting. There was no such expectation. But on the other hand, Turkey has a painful problem like inflation. Structural policies aside, there are a few things that need to be done in the short to medium term to fight inflation: keep credit demand in check and prevent further TL depreciation. We know there is a strong determination not to raise the interest rate. At this point, macroprudential measures appear as an alternative. We can call these practices a kind of indirect hardening measures. BRSA took a new step in this direction last Friday. With the measure adopted, some companies are trying to prevent idle money they hold for speculative purposes from obtaining cheap loans thanks to the negative real interest rate and turning to foreign currency.
Some companies, which can access the cheap credit offered by current monetary policy conditions, aim to generate income by converting this money into foreign currency instead of turning it into investments that will create added value, exports and jobs. The BRSA’s final step is to limit the speculative options of such companies. This arrangement will have given TL some respite. Ultimately, the costs of commercial loans are also expected to increase. For now, a question mark remains as companies that need to hold a certain amount of foreign currency due to the nature of their business and industry will be separated in this process. Macro precautionary measures provide support for solving problems such as inflation and exchange rate volatility, giving policymakers time to get to the root of the problem. Such practices are most effective when combined with a comprehensive set of anti-inflationary policies.



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