The global crude benchmark fell as much as 5.1% to below $95 a barrel, hitting its lowest level since late February. Crude oil prices have been falling since early June amid escalating fears of a possible U.S. recession. Shortly after the war began, Brent crude futures surged above $139 as Russia’s war in Ukraine disrupted an already tight supply-demand balance.
Broader markets weakened on Thursday, while the dollar resumed its gains, weakening dollar-denominated commodities. Traders have turned to expectations for a historic 1-percentage-point rate hike from the Federal Reserve later this month.
Nonetheless, global oil supplies remain tight, and the premium for immediately available barrels is large, as can be seen in the timing spread. Goldman Sachs Group Inc. said the market is “screaming” tight and this week’s sell-off was driven by low liquidity and technical factors.
“With weak demand data and macro risk factors completely overwhelming the fundamentally-tight physical market, crude prices have plummeted,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Management. “Risks appear to be skewed to the downside in the weeks ahead, even the most Convicted bulls are also on the sidelines.”
U.S. President Joe Biden arrived in the Middle East on Wednesday when a report showed U.S. inflation soared to a four-decade high last month, much of it driven by energy costs.
“Concerns about the impact of high inflation on economic growth and oil demand are clearly growing,” said Tamas Varga, an analyst at brokerage PVM Oil.
“Direct prices and structures are out of sync.” Brent for September settlement fell $4.33 to $95.24 a barrel at 10:08 a.m. in New York WTI for August delivery fell $5.06 to $91.24 a barrel , U.S. high oil prices began to affect consumption. U.S. gasoline demand fell to its lowest level since 1996 and even lower than the same week in 2020, according to the Energy Information Administration. The four-week rolling average of gasoline demand is the lowest on a seasonal basis since 2000. Crude inventories rose by 3.25 million barrels.
The resurgence of the Covid-19 outbreak in China has also weighed on the oil demand outlook. The outbreak in Shanghai appears to be easing, but other areas are being locked down and facing restrictions to curb the spread of the virus. Nationwide, 292 cases were recorded on Wednesday.