Crude oil prices fell below $90 a barrel as China’s weaker economic data stoked fears of a slowdown in growth.
Energy stocks also tumbled lower, but regained some of their losses by midday on Aug. 15.
Gasoline prices continued falling, marking 61 consecutive days of declines, giving consumers a reprieve at the pump as higher inflation rates have eroded wages.
The decline in crude oil and gasoline prices was caused partly from talks that Iran could start exporting oil if it is able to negotiate a nuclear deal that would ease sanctions from the U.S., EU and U.N., adding supply to the market, Patrick De Haan, head of petroleum analysis at GasBuddy, the Boston provider of retail-fuel-pricing information, told TheStreet.
News of China’s weaker economic growth also brought West Texas Intermediate, the U.S. benchmark, down by 5% initially, but prices rebounded.
WTI for September was down by 4.6% at $87.85 at last check while Brent crude for October, the international benchmark, declined by 4.74% to $93.50 a barrel. Gasoline futures, RBOB, was down by 13 cents a gallon.
Oil producers also were impacted by the decline in crude oil prices. Exxon Mobil Corp (XOM) declined by 1.97% while Chevron (CVX) fell by 2.02 % and Marathon Oil (MRO) dipped by 2.47% after declining between 3.7% and 5.8% earlier in the day.
The declines reflected rising concerns as China reported weaker economic data, restoking fears of a slowdown throughout global economies. China remains the world’s second largest economy and is the second largest consumer of oil. The U.S. consumes the most oil globally.
The country’s central bank cut lending rates in an effort to rejuvenate consumer demand as China’s data demonstrated a slowdown in July with Beijing's zero-covid policy and ongoing real estate crisis.
The U.S. dollar is strong as interest rates increased more rapidly than Europe and Japan, Richard Joswick, head of global oil analytics, S&P Global Commodity Insights, told TheStreet. A stronger U.S. dollar puts downward pressure on the price of oil since oil is traded globally in U.S. dollars.
Gasoline Prices Remain Under $4
Gasoline prices average $3.92 a gallon, while diesel prices are likely to fall under $5 a gallon this week and stands at $5.027 a gallon currently, he said. There are 29 states that are selling gasoline for under $4 a gallon and there could be 35 to 45 states selling for that price in the next few months.
The decline in gasoline prices could continue throughout this week, but government data on Aug. 10 showed a fairly substantial drop in gasoline inventories while crude oil inventories rose. Wholesale gasoline jumped by 40 cents in some parts of the U.S., De Haan said.
"There is a disconnect and gas stations have passed along a lot of drops," he said.
On Aug. 4, crude oil prices fell to their lowest level since before Ukraine was invaded by Russia in late February. WTI reached $88 a barrel while the international benchmark, Brent crude, fell to $95 a barrel.
Gasoline prices have been falling steadily since peaking at $5.03 on June 14. They have decreased by more than $1 per gallon, mirroring the decline in crude oil prices.
Prices for gasoline are now past their summer peak. Refiners will start producing gasoline specified for winter months, which is cheaper and easier to make because of the products that are used to blend crude oil, Joswick said. He expects that Brent crude prices "will land below $100 before the end of the year."
Oil Prices Remain Volatile
China’s data did not show any growth last month. Before the pandemic, total global oil demand growth has been over 1 million barrels per day and China has represented most of this demand growth, Rob Thummel, senior portfolio manager at Tortoise in Overland Park, Kan., told TheStreet. China’s oil demand growth has been 600,000 to 800,000 barrels of oil each year.
The question on investors’ minds is when demand in China will return since data has indicated that manufacturing rates have declined. The continued lockdowns in China is the “one thing holding back the market,” he said.
The market is also concerned about the impending sanctions of oil supply by Russia, which are expected to start in December.
Both crude oil and gasoline prices could wind up reversing, resulting in higher prices as Russia’s production will decline, impacting European countries since they are the largest buyers of the country’s oil.
“The market is worried about higher demand from China, potentially more supply coming from Iran and lower supply from Russia” he said.
By the end of the year, Brent crude prices could rise to $115 a barrel while WTI will increase to $105 to $110 a barrel.
Gasoline prices are headed in the right direction and will likely stay below $4 for a while and will sell for $3.80 to $3.90 a gallon on average nationally by the end of the year.
“If oil goes up dramatically, gasoline prices could pop up by 25 cents a gallon,” Thummel said. “Crude oil would have to hit $70 a barrel for gasoline prices to fall to $2.99 a gallon.”
The lower levels of inventories means any disruptions in those supply volumes will exacerbate prices and move upwards temporarily.
Peak Hurricane Season Around the Corner
A major hurricane making landfall along the Gulf Coast could cause a $10 spike in oil prices or $25 cent gasoline prices, Thummel said.
An outage at refineries could increase gasoline prices to increase back into the mid $4s.
The Colorado State University predicts an active hurricane season and estimates 18 named storms, eight hurricanes, and four major hurricanes that are Category 3 or higher.
Peak hurricane season begins at the end of August and lasts through late September to early October, De Haan said.
"We could see a bit of bumpy ride from hurricane season and possible shutdowns of refineries could push prices higher," he said. "After peak hurricane season, prices should remain lower than they have been than most of summer and will be under $4 a gallon."
