Although prices cooled down from their 14-year high hit in March, crude oil prices remain extremely volatile on uncertain macroeconomic conditions.

A cut in global oil demand forecast by agencies like Energy Information Administration (EIA) and OPEC, easing tensions between Russia and Ukraine, concerns over China’s demand, and a G7-proposed price cap on Russian oil significantly affected the global oil markets.

The US EIA recently trimmed its crude oil demand outlook for 2023 by 320,000 barrels per day, with supply also falling by 300,000 bpd. The oil producers’ cartel, OPEC, also revised its oil demand forecast for next year given the mounting economic challenges like high inflation and rising interest rates. In addition, the group warned that global supplies might become more vulnerable in the near future.

Heightened fears of lower oil demand from the world’s largest oil importer, China, are weighing on global crude oil prices. China’s demand for energy commodities has shrunk as a result of the country’s zero-tolerance policy towards Covid-19.

For the past several months, as lockdowns are persistent, the energy demand has collapsed in the country. However, the government announced that proactive measures to support the economy would be taken, which may spur demand gradually.

However, clouds are gathering on the supply side. The European Union’s embargo on Russian crude oil imports will come into existence soon. The sanctions will ban seaborne imports of Russian crude by the first week of December and on other petroleum products by February 5, 2023.

The G7’s plan on implementing a price cap on Russian oil is in the final stages. The West wants to keep Russian oil flowing into international markets but to reduce the country’s oil revenues. These unprecedented measures would limit Russia’s ability to fund its military actions on Ukraine. The proposed price cap is set to begin on December 5.

These moves are expected to put additional disruptions in the global energy supply chain. The upcoming EU oil embargo and G7 price cap are supposed to cut global oil supplies by about one million barrels per day.

Meanwhile, the success of the G7 price cap plan is still uncertain as China and India are not on board with the idea. Both China and India, are the top buyers of Russian oil since the start of the war, and at one point, it accounted for almost half of the Russian exports.

The recent withdrawal of Russian troops from the major Ukrainian city of Kherson is considered a significant retreat and a major turning point in the Russia-Ukraine war. Anyhow, since Russia is the world’s largest fossil fuel exporter and plays an outsized role in global oil markets, this move is likely to ease prevailing supply uncertainties.

The war that began in late February has caused tremendous human suffering and a significant blow to the global economy. Faster inflation and slow growth have been hitting the global economy. The end of war perhaps boosts global economic activities and thus the demand for oil.

Looking ahead, as the complete ban on the Russian oil embargo is nearing, prices continue to be extremely volatile. On top of reduced Russian supplies, a shortage in OPEC Plus output and lower US shale production would put more pressure on global oil prices. At the same time, high inflation, demand from China, and global growth worries would dampen short-term demand.

Hareesh V, Head of Commodities at