The price of crude oil has taken a significant step back in recent days. In part, the long-standing fear of a recession resurfaced. The demand for oil would therefore fall sharply. However, that is not the main reason for the decline, according to many experts.
Brent crude has taken a significant plunge this week. A week ago, on Friday, July 29, Brent oil closed at $109,98 a barrel. That dropped to $5 a barrel today (Friday, August 93,93). That is a drop of almost 15% in a week.
Analysts look for the main cause for the sharp fall in the oil price in the weekly stock figures of the Energy Information Administration (EIA). This US government agency surprised the market with a sharp increase in oil stocks.
Traders and experts expected a decrease in stocks of more than 600.000 barrels. Instead, the EIA increased inventory by nearly 4,5 million barrels. In addition to the growing stock, the EIA found that the demand for fuel is lagging. The demand for petrol in particular is relatively low. This is seen by several analysts as a sign that American consumers are feeling the consequences of the high inflation well in their wallets.
Slap in the face
Opec+ decided in its monthly meeting this week to increase production by 100.000 barrels per day for September. Furthermore, OPEC writes in the report of the meeting that oil stocks are relatively small. Commercial stocks have fallen below the five-year average, with emergency stocks at their lowest level in thirty years. Furthermore, the cartel warns that there is not much spare capacity to increase production. The string of warnings and limited production increase is seen by some experts as a slap in the face for US President Biden. One of the goals of his state visit to Saudi Arabia a few weeks ago was to get the Saudis to pump more oil. That has now turned out to be as good as unsuccessful, according to various experts. The increase in production by Opec+ is seen by experts as a drop in the ocean and not a solution to somewhat bring the relatively high oil price and the inflation that is driven into line.
The hurricane season that started on the American coasts in early August can also cause strange jumps in the oil market. The location of several major oil refineries in the Gulf of Mexico remains a risk. The oil industry survived the previous hurricane season relatively unscathed. A number of chemical producers did receive the full brunt and the consequences of this on the production of, for example, certain crop protection products were still noticeable months later. Major damage to the refineries this year would probably have an additional adverse effect on the oil market. In an effort to bring the price of oil down, Biden has been drawing on strategic stocks that have since been insufficiently replenished to bridge a large-scale and prolonged production outage.
The diesel price was also in the downward trend last week. At the beginning of this week, the diesel price was €152,62 per 100 liters. That has now dropped to €143,02 per 100 liters today (Friday 5 August).