Oil Dips On Suggestion of Dismal U.S. Peak Driving Season

by Ship & Bunker News Team
Wednesday July 20, 2022

Volatility in the predictable form of concerns of a physically tight market vying for prominence over concerns of demand destruction saw oil prices decline slightly on Wednesday – as data showed a decrease of vehicles on U.S. roads during the summer driving season peak.

Brent for September fell 43 cents to settle at $106.92 per barrel, and West Texas Intermediate for August fell $1.96 to settle at $102.26 per barrel after it was reported that U.S. gasoline inventories rose 3.5 million barrels last week, exceeding analysts' forecasts for a 71,000-barrel rise.

It is unclear how much of that swelling inventory was due to releases from the Strategic Petroleum Reserve.

Robert Yawger, executive director of energy futures at Mizuho, remarked, "Gasoline is the big concern here: you don't really want to be going backwards on gasoline in the middle of the summer."

Additionally, open interest (the total number of contracts held by traders) for West Texas Intermediate has fallen to its lowest level since 2015, according to CME Group Inc.

However, U.S. crude inventories fell 446,000 barrels last week, compared with expectations for a 1.4 million-barrel rise.

The consensus of many analysts was that average prices in the U.S. may have peaked in June, at $5.01 per gallon and are not likely to return to that level barring a disruption in oil and refining operations or a spike in oil prices.

Tom Kloza, head of global energy research at OPIS, said, "Crude oil stocks are about 152 million barrels behind last year; you could see crude prices take off, or maybe not.

"I don't regard this as a coast is clear, but you'll get plenty of people who do."

Wednesday's lackluster trading driven by the notion that demand is finally starting to wan in the face of record high prices at the pump was augmented by news that would presumably be a relief to those who think the market is well supplied and that oversupply is the next concern to focus on.

A Bloomberg editorial reiterated recent claims of Saudi Arabia that the kingdom can only pump a maximum of 13 million barrels per day, a lot lower than many had thought; the news agency noted that in 2004, the kingdom planned to expand its pumping capacity to 15 million if needed.

Bloomberg stated, "Oil demand will have to peak because there won't be additional supply," and that "Ultimately there are only two routes to that outcome: voluntarily, by shifting to low-carbon sources of energy such as nuclear power or wind; or by compulsion, via much higher oil prices, faster inflation and slower economic growth.

"If we don't take the first path, we'll be forced to follow the second."