Oil Steadies Despite Analysts Insisting That Demand Destruction Is Underway

Meanwhile Russia defies international sanctions and continues to prosper: File Image/Pixabay

Following an almost 8 percent drop in the previous session, oil prices on Wednesday steadied
somewhat but were still heavily influenced by the one-two punch of recession fears brought about by rampant inflation and diminished demand.

After the release of the latest U.S. data showing the highest inflation increase in decades (of 9.1 percent year-on-year) and an uncommon decline in gasoline demand (it tumbled to 8.06 million barrels per day last week, lower than same week in 2020 and the lowest seasonally since 1996), West Texas Intermediate for August delivery rose 46 cents to settle at $96.30 per barrel.

Brent for September settlement rose 8 cents to settle at $99.57 per barrel.

Additionally, the International Energy Agency said in a report that fuel costs are starting to "take their toll" on demand growth, and these bearish statements combined caused Ed Moya, senior market analyst at Oanda Corp., to remark that "The oil market might be tight, but high energy costs are clearly leading to crude demand destruction."

All but ignored on Wednesday was a main motivator of the previous session's massive sell-off, China's reaction to more Covid cases – even though it was reported on Wednesday that residents in Shanghai have been urged to stockpile food and medicines in case government decides to lock down the city.

Possibly, traders were mollified somewhat by reports that China's exports expanded at a faster pace than expected in June.

Ironically, the only clear winner in the volatile energy market seems to be Russia, whose exports rose back above $20 billion in June despite lower ship abroad, according to the IEA; that was a $700 million increase from a month earlier, even as the former Soviet Union's daily exports of crude-oil and products fell by 250,000 barrels to 7.4 million barrels, the lowest since August.

Still, despite being oversold based on the relative strength indicator, some analysts believe oil may be temporarily down, but not out: Thomas Saal, senior vice president at StoneX Financial, said on Wednesday, "I wouldn't say this uptrend is over yet: iInventory levels are still pretty low worldwide, and that's been a big factor in this rally."

Indeed, Reuters pointed out that Forties crude, one of the grades underpinning Brent futures, "was bid at a record high premium to the benchmark of plus $5.35 per barrel on Wednesday, while U.S. Midland crude was at a premium of $1.50 per barrel to WTI, also reflecting tightness."