Oil extends 10% weekly tumble as demand concerns spur caution

West Texas Intermediate dropped below $88 a barrel in early Asian trading after slumping by almost 10% last week on soft US gasoline consumption data. Investors have backed away from commodities in recent months as slowing growth feeds concern that energy usage will drop. That’s eroded liquidity.

Crude has had a roller-coaster ride in 2022, soaring in the opening months of the year following Russia’s invasion of Ukraine, then sinking from June onward as global slowdown concerns gathered pace. Elevated inflation has prompted central banks including the US Federal Reserve to jack up interest rates, with investors wagering that more hikes remain in store this half.

Oil is “down but not out,” Goldman Sachs Group Inc. analysts including Damien Courvalin said in an Aug. 7 note that both reduced the bank’s near-term price forecasts while making the case for a rebound. “We continue to expect that the oil market will remain in unsustainable deficits at current prices.”

Oil’s drop early Monday came despite data released at the weekend that showed China’s imports of crude rose in July from the lowest in four years as travel and transportation activity improved after Covid-19 curbs eased. Still, the country’s year-to-date total remains about 4% lower.

While oil markets remain in backwardation, a bullish pricing pattern, key differentials have narrowed in recent weeks, suggesting an easing of tightness. Brent’s prompt spread, the difference between its two nearest contracts, was $1.69 a barrel on Monday, down from $3.56 a month ago.

The drop in crude has been accompanied by a sustained retreat in gasoline prices, which will be welcomed by US President Joe Biden as his administration seeks to tackle inflation. Average nationwide retail gasoline prices in the US dropped for 54 days straight to Saturday to a little above $4 a gallon, according to auto club AAA. They peaked at a record above $5 in June.

Still, Goldman Sachs said the drop in pump prices was unlikely to last. 

“US retail fuel prices will rally into year-end,” the bank said, predicting gasoline will climb back to $4.35 by the fourth quarter. 

This story has been published from a wire agency feed without modifications to the text.

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