The price of WTI crude oil fell more than 4 percent on Wednesday to $105 a barrel, hitting its lowest level in a month. The reason may be the increasingly negative outlook for the global economy and growing concerns that rising interest rates in the U.S., aimed at curbing soaring inflation, will slow demand.
It is through rising fuel prices and inflation that Americans are expected to cancel trips and travel in part, according to a CNBC survey. This could also curb demand for fuel this summer season.
U.S. President Joe Biden is expected to call for a gasoline tax vacation and meet with seven major oil companies this week as part of a campaign to lower fuel prices.
Signs of continued supply tightness persist in fuel markets, with Exxon Mobil and Vitol warning that demand is still not back to pre-pandemic levels and supply is not expected to keep up with demand growth.
Crude supply disruptions caused by Russia's assault on Ukraine and the fact that OPEC is unable to pump more oil due to underinvestment have also kept upward pressure on oil prices recently. At the June 2 OPEC+ meeting, cartel members announced an upward revision to production targets for July and August. According to EIA, OPEC oil production will average 29.2 million barrels per day (b/d) in H2 2022, up 0.8 million b/d from H1 2022. In contrast, Russia's liquid fuel production will fall from 11.3 million b/d in Q1 2022 to 9.3 million b/d in Q4 2023.
Analysts say the Fed-induced slowdown provides a short-term solution to soaring prices, but will not solve the problem of limited supply. Thus, high oil prices could persist for a long time to come.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service)
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