Crude oil futures are back on the upswing today, after a bloodbath earlier this week. The market was upbeat following lower-than-expected inflation data. But the upbeat mood was offset by some doubts over China’s economy. This has pushed crude prices back from an earlier peak of $120 a barrel. Some analysts expect a further decline in the second half of the year.

Analysts have a hard time predicting when prices will reach the bottom, but some believe they could drop to about $65 a barrel by 2022. Citigroup recently predicted that oil would fall to this level. While the drop may be temporary, some experts are worried that the global demand for oil has reached its limit.

Historically speaking, recessions trigger dramatic declines in global oil demand. Several countries in Europe are raising concerns over the possibility that Iran will re-engage in its nuclear deal. In addition, Russia is a country with increasing production. However, its exports are restricted by the European Union. These factors can lead to an uneven price pattern, keeping oil prices well above the long-run averages.

Another factor causing some doubt is China’s strict zero-COBID policy. This reduces fuel consumption and could keep many from traveling during the holidays. Even after China eased the policy, more countries are demanding COVID tests. As a result, some experts are concerned that the economic recovery in China has been delayed.

One major reason for the recent oil rally is that the US Bureau of Labor Statistics reported lower-than-expected inflation figures for October. A decline in the unemployment rate to a pre-pandemic low of 3.5% and a solid gain in employment helped to instill confidence in the markets. Earlier this month, Atlanta Federal Reserve President Raphael Bostic said the economy was slowing down, which could lead to a smaller rate of interest hikes. If the pace of interest rate increases is slower, it can reinvigorate growth.

With the dollar down, oil producers and importers are gaining a boost. According to PVM analyst Stephen Brennock, the economy “is going to be much more vulnerable in the first half of the year”. Nevertheless, Morgan Stanley’s global energy analyst Tom Kloza says the market has the potential to rise mid-year.

Some analysts are worried about the lack of investment in production. Without sufficient investment in the market, prices will remain elevated. Craig Brothers, senior portfolio manager at Bel Air Investment Advisors, says the drop in prices is not sustainable.

Although oil producers and importing nations are benefiting from the decline, Russia is losing. Moscow’s revenue will also be affected by the price cap it has been forced to maintain on its crude. By the end of the year, if the supply-demand imbalance continues, prices are likely to remain above the long-run average.

Some oil analysts are worried about the potential for another recession. If the United States and other oil-producing nations are hit by a recession, demand for oil will decline. Oil demand accounted for 36% of U.S. energy consumption in 2021.