Americas News
Oil Slump Continues As Banks Hell-Bent To Punish Strong Demand
Oil slumped again on Tuesday thanks to traders reacting yet again to what is rapidly becoming the worst kept financial secret: that central banks may not be finished raising interest rates in their bid to combat inflation.
After Christine Lagarde, president at European Central Bank, stated on Tuesday that her institution will not declare an end to rate hikes due to the current state of inflation, Brent settled down $1.92, or 2.6 percent, at $72.26 per barrel; West Texas Intermediate settled down $1.67, or 2.4 percent, to $67.70.
Traders were also spooked by the familiar dilemma of robust demand – which on Tuesday was expressed by news that U.S. consumer confidence increased in June to the highest level in nearly 1-1/2 years, accompanied by labour market optimism – acting as a likely reason for the Federal Reserve continuing to raise rates in order to slow demand.
Compounding this fear was other evidence of bullish consumer behaviour: the American Petroleum Institute reported that crude stocks fell by about 2.4 million barrels in the week ended June 23, while gasoline inventories fell by about 2.9 million barrels.
Surprisingly, the situation that seemed certain to cause market turmoil – political instability in Russia, which received intense scrutiny from oil analysts in the previous session – has been largely shrugged off: "The latest geopolitical flare-up quickly pales into insignificance compared to persistent macroeconomic considerations," said Tamas Varga, analyst at PVM.
Ole Hansen, head of commodities strategy at Saxo Bank, summarized the crude investment market by stating, "Oil is well and truly stuck and rangebound, taking all the news on the chin."
Yet more grim news on Tuesday was delivered by Goldman Sachs Group Inc., whose analysts wrote in a note that timespreads will continue to face headwinds due to the pessimism over demand and high interest rates; this was in reaction to key nearby timespreads, which help gauge the strength of the oil market, falling deeper into a bearish contango structure.
Capping the gloom on Tuesday was Bloomberg, which, in reporting AAA Travel data that holiday travel will hit an all-time high of 50.7 million Americans between June 30 and July 4, observed, "even that won't return the country's struggling gasoline sector to its pre-Covid peak."
The news agency went on to argue that "while record driving is good news for gasoline and the refiners who supply it, the widespread adoption of more efficient vehicles means fuel demand nonetheless remains muted [current fuel use is still almost 5 percent below the same time in 2019] — and might never get back to pre-pandemic rates."
