Oil on course for $90 with fresh 4% plunge

LAST UPDATE

The sell-off in oil continues steadily, with sellers prevailing today against the backdrop of rising US inventories and mammoth inflation paving the way for another giant Fed rate hike.

In particular, the global benchmark the European crude type Brent sees the September delivery contract trading at a loss 4.1% and its price to yield to 95.5 dollars the barrel, having lost 4 dollars today,

Similarly, the American WTI August retreats by 4.8% trades in 91.7 dollars the barrel, price reduced by 4.5 dollars today.

Oil prices have been on a steady downward path for the past two weeks as concerns about an impending economic downturn that will hit energy demand have intensified.

Which underlines the reduction in the reduction of supply, which was already significantly limited, due to sanctions in Russia and production disruptions in Libya.

“Attention in the oil equation is clearly now on the demand side. Yesterday’s weekly report in the US showed significant increases in product inventories,” notes PVM Oil Associates analyst Tamas Varga.

According to him, “the collateral blow from rising inflation fears is the strong dollar, which is also weighing on oil prices. Interestingly, physical markets are still strong, but currently the dominant force is emerging in the climate of financial investors”.

The Federal Reserve is expected to step up its fight against high inflation, possibly with a mammoth 100 basis point hike in interest rates this month, after yesterday’s report showed price pressures were intensifying, with the Consumer Price Index to move to a beastly 9.1% in June.

After all, the way was shown yesterday by the Bank of Canada, which increased its own by 100 bp. in a surprise move.

In this climate, investors are flocking to the safe-haven US currency, with the dollar index (DXY) hitting a 20-year high yesterday, making oil more expensive for non-US buyers.

At the same time, concerns about the containment measures due to COVID-19 in many Chinese cities to contain the cases of the highly infectious new sub-variant detected are also “weighing” on oil prices.

China’s daily crude oil imports sank in June to their lowest level since July 2018 as refiners expect lockdowns to curb demand, customs data showed.

Data in the US also showed a decline in demand, which fell to 18.7 million barrels per day, the lowest level since June 2021, while inventories in the country rose after another large release of strategic reserves.

Finally, US President Joe Biden will be in Saudi Arabia tomorrow, Friday, where he will attend a summit of Gulf allies and ask them to increase oil production.