U.S. oil prices fell to the lowest levels in three months Tuesday, potentially pulling gasoline costs back closer to $4 a gallon, as investors pared bets on global demand amid forecast cuts from OPEC and a renewed surge in Covid infections in China.
OPEC, which controls around a third of global output, trimmed its 2023 demand forecast to around 2.7 million barrels, or 2.7%, to around 30.1 million barrels per day. The cartel sees non-OPEC supplies rising by 1.7 million barrels per day.
The slower growth forecast, coupled with fresh lockdown orders for the Chinese gaming hub of Macau, as well as Shanghai, amid a surge in new Covid variant infections pulled oil price sharply lower Tuesday.
A surging U.S. dollar, which hit a fresh 20-year high of 108.466 against a basket of its global peers earlier in the session, and traded at parity against the euro, added downward pressure to crude prices as well.
The impact of President Joe Biden's decision to authorize the release of 180 million barrels from the nation's Strategic Petroleum Reserve in order to bring ease the supply hit from Russia's war on Ukraine is also having its effect.
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"With the focus on recession and financial traders positioning themselves accordingly, tight fundamentals have not prevented the sector from taking a hit either," said Saxo Bank's chief commodity strategist Ole Hansen. "The losses seen in Asia today being driven by a Covid-19 resurgence in China adding to concerns about a global economic slowdown. It highlights the current challenge with traders having to navigate recession fears against a supply side challenged by sanctions and under investments."
WTI crude futures for August delivery, the most tightly-linked commodity to U.S gasoline prices, were marked $8.04 lower on the session at $96.05 per barrel in early afternoon trading, the lowest since April 7, when U.S. gasoline prices averaged around $4.195 per gallon.
Brent crude contracts for September delivery, the global pricing benchmark, fell $7.47 to change hands at $99.63 per barrel.
Data from the AAA motor club, meanwhile, indicated that U.S. gas prices eased from last month's all-time high of $5.107 to a national average of around $4.655 per gallon Wednesday, the lowest in more than a month, prior to today's sell-off.
“The national average has declined for 27 days straight, or four weeks, the longest decline in average gas prices since the pandemic started in 2020. Average gas prices are down nearly 40 cents, with Americans shelling out $140 million less on gasoline every day than they did a month ago,” said Patrick De Haan, head of petroleum analysis at GasBuddy.
“We may see the trend last a fifth week, as long as oil prices remain cooperative and don’t surge beyond $105 per barrel, and as long as refinery production of gasoline remains strong."
