However, the signs of demand destruction are equally compelling: File Image/Pixabay
Proving once again that there is no rhyme or reason – or predictability – governing crude trading, oil rallied on Monday as traders suddenly opted to act on fears of tight supply rather than a possible destruction of demand, which dominated trade last week.
Even if the WE The Federal Reserve is expected to raise interest rates this week to slow economic growth (and therefore negatively impact demand), traders responded to reports that some buyers in Asia pay premiums of more than $20 per barrel to guarantee certain qualities, and Brent futures are trading at around $5 on the next month’s contract – both reflecting just how stretched the physical market really is.
As a result, West Texas Intermediate for September delivery has increased $2.00 settle at $96.70 per barrel, and Brent pink $1.95 settle at $105.15 per barrel.
Crude prices show signs of stabilizing around mid-90s
Ed Moya, Senior Market Analyst, Oanda Corp
As if to echo the schizophrenic nature of the shopping community, Francois BlanchHead of Global Commodities and Derivatives Research at Bank of America Corp. told clients in a note that “the key macroeconomic variable to watch for clues about the future direction of commodity prices is underlying US inflation: should the core surprise on the downside , a less aggressive tightening path could fuel a second round of commodity price inflation in 2023.”
But in the same note, he added: “Although it is true that the reverse would also be true”.
Ed Moyasenior market analyst at Oanda Corp.., said: “Crude prices are showing signs of stabilizing towards the mid-$90s as the oil market remains tight despite a fresh wave of weak economic data in the United States and Europe…..despite the growing risks of a severe recession, Oil should enjoy strong support at the $90 level in the near term.”
It is equally difficult to determine the true effect of international sanctions against Russia.
On the one hand, the media reported that the economy of the former Soviet Union was hardly affected and that countries like China and India having maintained its export levels; on the other hand, the data continues to show a steady erosion of exports.
Case in point: On Monday, it was reported that deliveries from Russia to buyers had fallen for five consecutive weeks, down by 480,000 barrels per day (bpd), or 13 percentsince mid-June.
According to ship tracking data monitored by Bloomberg, shipments to China and India are down somewhere between 15 percent and almost 40 percent of their post-invasion peak.
Geopolitical events aside, more volatility in crude trading is likely for the foreseeable future as the case for demand destruction continues to be made: Also on Monday, news from the American Automobile Club arrived . AAAwho surveyed 1,002 adults last month and found that 64 percent of Americans have adapted their driving or lifestyle habits in response to high fuel prices.
Among these, 88 percent said they drove less, 74 percent said they combined shopping and more than half reduced visits to shops or restaurants; the survey also revealed that many Americans have postponed vacations this year.
Meanwhile, tight global supply tightened by a fraction on Monday when it was announced that Libya boosted oil production to more than 1 million bpd, more than double its production in recent weeks when fields and export terminals were closed due to a power struggle between two governments.
Oil production was reopened partly because the government agreed to reshuffle the state-owned company’s board National Oil Company. and the appointment of Farhat Bengdara as group leader.