Oil prices tumbled Wednesday as markets focused on US demand concerns after opening higher at the start of Asian trade. Despite China’s commitment to boost economic growth and Russia’s tightening of supplies, demand concerns for the US are putting downward pressure.
Brent futures edged down 1 cent at 0615 GMT to $79.62 a barrel, while West Texas Intermediate (WTI) crude fell 15 cents to $75.60 per barrel.
There are many positive drivers for oil prices on the supply-demand front right now, and while we expect WTI to bounce near $80 a barrel, in respect of risk appetite it doesn’t mean it’s a bull market, because with the dove stance of the global central banks still signals a pullback.
Economists are still worried about the US’s interest rate, supply, and demand balance. While it is likely to raise interest rates for the last time in July, concerns about U.S. demand that will limit oil price gains are likely to remain.
Even with a rate hike, inflation may not fall fast enough. Surveys show that core inflation, which does not include food and energy prices, could fall only slightly or remain at the current 5% level by the end of the year.
On the positive front, however, China, the world’s second-largest economy, on Tuesday pledged to implement policies to reinvigorate and expand consumption, which could boost demand for oil as consumers’ purchasing power remains weak.
Assuming that the stimulus in China will be successful, it seems that oil balances will tighten considerably, even if Europe falls into a mild recession.
This means that prices could test the upper end of the current market’s $80-per-barrel range.
On the supply side, Russia will reduce its oil exports by 2.1 million mt in the third quarter, in line with the daily voluntary export cut planned in August, according to the energy ministry.
The expected decline in US oil inventories also supports prices after data from the American Petroleum Institute (API) showed crude oil, gasoline, and distillate stockpiles fell last week.
Traders are focused on confirmation of stock drops in data from the US. Official Energy Information Administration (EIA) data will be released on Wednesday at 1430 GMT.
