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Destroying demand outweighs supply fears -by Ecork

WTI Crude Oil Basic Weekly Outlook: Bearish

  • Relief in US motorist pumps as higher prices affect demand
  • Next week’s Fed rate decision is likely to support further declines in Crude Oil as demand destruction outweighs concerns about supply constraints.

West Texas Intermediate crude oil daily chart

Source: TradingView, prepared by Richard Snow

WTI continued to decline, providing some relief to American motorists at the pumps. The national average gas price is about $4,419 per gallon with 8 states under $4 and the most popular price at $3.99. This is good news after US President Joe Biden’s unsuccessful visit to Saudi Arabia where he was unable to persuade delegates to increase oil supplies.

WTI prices fell even though the Energy Information Agency (EIA) revealed a decline in crude oil inventories by 446,000 when an increase in inventories of 1.357 million was expected – a rather noticeable swing. Moreover, oil prices continue to fall even though OPEC is operating near its maximum capacity.

Crude Oil Basic Outlook: Demand destruction outweighs supply fears

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The latest price action in the oil market revealed the widening spread of Brent and WTI after the EIA released its latest report for the week ending July 15th. In the past couple of weeks, we may have seen the effects of demand destruction in the US though. Since they are the summer months when driving tends to be higher, therefore, we see a slight increase in fuel prices.

$5/gal is said to be the price at which consumers change their driving pace according to the American Automobile Association. An EIA report showed that demand for gasoline was down more than 8% from a year earlier while Brent crude prices were supported, in part due to higher demand from Asia putting the commodity on track for its first weekly gain in six weeks. The lower demand for WTI and the slight rise in Brent crude contribute to the expansion of the spread of Brent and WTI.

The widening difference in the price of Brent crude oil and West Texas Intermediate crude

Crude Oil Basic Outlook: Demand destruction outweighs supply fears

Source: TradingView, prepared by Richard Snow

Ongoing Special Petroleum Reserve (SPR) releases are ongoing and appear to have some impact on fuel prices. Although the significant declines we have seen are mainly due to global recession fears combined with inconsistent demand brought about by previous high prices.

On Wednesday, the Federal Open Market Committee (the Federal Reserve’s rate-setting committee) will decide how much to raise the US Federal Reserve with markets expecting 75 basis points. A continuation of the rally into weakness may increase recession fears and lead to a downward adjustment in demand along with oil prices.

Written by Richard Snow for DailyFX.com

Connect with Richard and follow him on Twitter: Tweet embednowFX

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