(See the chart for this story in the online PDF.)
The losses came on top of steep declines on August 30 that saw ANS drop $4.49 to close at $104.16, while WTI plunged $5.37 to close at $91.64. and Brent abruptly abandoned its tenuous perch above $100, dropping $5.78 to close at $99.31.
Oil followed global stock markets lower as investors worried about potential interest rate hikes in the United States and European Union. The Federal Reserve has hiked rates four times in 2022 for a total of 2.25 percentage points, and markets are pricing in a third straight hike of 0.75% at the Fed’s September meeting.
The European Central Bank is also reportedly considering the same rate of increase for its next meeting after consumer prices jumped 9.1% from a year ago in August.
Exchange rates also weigh on prices. Oil, priced in dollars, is less affordable for foreign currency holders, with the dollar index hitting a 20-year high of 109.44 points on August 29.
Adding to traders’ concerns, China is imposing a series of draconian new COVID-19 lockdowns as it continues to enforce a zero-COVID policy that has stifled the country’s economic growth prospects for 2022. The country is also grappling with high temperatures and drought, as well as unstable real estate markets.
On August 29, the city of Shenzhen closed the world’s largest electronics market in Huaqiangbei and suspended public transport in the area, CNN reported.
China’s woes played a big role in lowering prices, Harry Altham, energy analyst for EMEA and Asia at StoneX Group in London, told Reuters on Aug. 31. savings”.
Bullish news on US demand for oil and gasoline failed to overcome bearish sentiment.
Commercial inventories of U.S. crude oil for the week ending August 26 fell 3.3 million barrels from the previous week, to 418.3 million barrels, 6% below the five-year average for the time of year, the US Energy Information Administration reported on Aug. 31. The strategic oil reserve was drawn down from 3.1 million barrels to 450 million barrels during the week. A year ago, the SPR stood at 621.3 million barrels.
Total motor gasoline inventories fell 1.2 million barrels for the week, standing 7% below the five-year average for the time of year, the EIA said.
The specter of escalating political unrest in Iraq has also added to the possibility that oil prices could be driving higher.
Protests erupted in Iraq on August 30, after powerful Shiite cleric Muqtada al-Sadr announced his resignation from politics, CNBC reported on August 31.
“While Iraqi production is generally quite resilient to unrest, the current political environment is extraordinarily toxic and poses a considerable risk to the oil sector,” Fernando Ferreira, director of Rapidan Energy Group, told CNBC.
Ferreira said the power struggle between Shiite factions in the country is far from resolved, adding that civil unrest will remain a recurring risk for oil markets.
“Prices could rise $5-$10 on Iraqi disruptions, possibly more as low liquidity leads to bigger swings than usual,” he said.
The rally fades away
As of August 29, oil markets were in rally mode, supported by comments by Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman the previous week suggesting that the Organization of the Petroleum Exporting Countries and its allied oil exporters would consider cut production to stabilize markets if oil prices continued to fall.
ANS jumped $3.60 to close at $108.64 on the day, while WTI gained $3.95 to close at $97.01 and Brent jumped $4.10 to close at 105, $09.
On August 26, ANS rose 10 cents to close at $105.04, WTI rose 54 cents to close at $93.06, and Brent rose $1.65 to close at 100.99 $.
ANS fell $2.01 on Aug. 25 to close at $104.94, while WTI fell $2.37 to close at $92.52 and Brent fell $1.88 to close at $92.52. close at $99.34.
From Wednesday to Wednesday, the ANS’s Aug. 31 closing price of $101.36 was $5.58 lower than its Aug. 24 close of $106.94. As of August 31, ANS was trading at a premium of $4.87 over Brent.
$120 in preparation
Jeff Currie, global head of commodities at Goldman Sachs, thinks oil is likely to top $120 a barrel later in 2022 as energy shortages happening around the world impact the crude market.
In markets such as Europe and China, energy shortages are likely to drive consumers toward petroleum-based fuels, a bullish factor for crude prices, Currie said in an interview with CNBC on 30 august.
A delay or avoidance of a recession could trigger a massive rise in crude prices, he said.
“Historically, any time macro markets, like the yield curve, try to price in a recession and you don’t get the recession in the United States – as is likely to happen – oil bounces back 80 % to 100% after that,” he said. said.
Global supply is tight and shortages are possible in almost all regions, Currie said. Outside of the United Arab Emirates and Saudi Arabia, there is little spare capacity in the system.
“The United States is the only region in the world relatively well positioned in terms of adequate energy supply,” he said.
Click here to subscribe to Petroleum News for as little as $89 per year.