Oil Swings Back To Losses As Low Consumer Confidence Chills Traders

Meanwhile, tightness may cause Germany to start rationing supplies: File Image/Pixabay

No sooner did traders decide that tight global crude supplies was a more serious issue than demand concerns and sent oil prices escalating in the previous session than they reserved gears on Tuesday in anticipation of a U.S. Federal Reserve rate hike that could negatively impact demand – and caused oil to drop.

West Texas Intermediate dropped 1.8 percent to settle below $95 per barrel not only in response to the expected Fed hike but also a Conference Board survey showing that U.S. consumer confidence dropped to nearly a 1-1/2-year low in July on nagging worries about inflation and rising interest rates.

This came on the heels of broader markets dropping after a series of tepid earnings underscored that inflation is starting to affect consumer behaviour.

Brent on Tuesday fell 75 cents, or 0.7 percent, to settle at $104.40; WTI fell $1.72 cents to $94.98.

In addition, Washington announced it will sell an additional 20 million barrels of SPR crude oil as part of a previous plan to tap the facility to calm oil prices boosted by Russia's invasion of Ukraine – and although previous sales have done nothing to tame prices, John Kilduff, founding partner at Again Capital, remarked, "The market reacts to these SPR announcements and has helped keep a lid on things, to an extent."

The return to focus on demand concerns came as it was reported that Germany faces rationing this winter due to Russia's cut in supplies; Wood MacKenzie also forecast that at 20 percent of capacity, Europe will be able to refill storage to only 75-80 percent ahead of winter.

Tamas Varga, analyst at PVM, said, "The announcement revived fears that Russia, despite its cynical denial, will not shy away from using its energy as a weapon in order to gain concessions in its war against Ukraine and ... could probably expect short-term success."

In other oil related news on Tuesday, Exxon Mobil Corp., Chevron Corp., Shell Plc, TotalEnergies and BP were said to be set to set to make even more money than they did in 2008, when oil prices climbed as high as $147 per barrel: big oil is poised for a record-breaking $50 billion profit in the second quarter, but this caused Ahmed Ben Salem, an analyst at Oddo BHF, to remark, "There's a strong chance that earnings will peak in the second or third quarter, with a small decline thereafter."