On Wednesday, oil prices fell after data from the US government showed that gasoline demand during the peak driving season in the summer had reduced energy demand. The hike in the interest rates by central banks for combating inflation had also fueled fears of an economic slowdown and this also had a negative impact on the demand for energy.
However, some of the losses in oil prices were trimmed in Wednesday’s trading session, after TC Energy disclosed that its Keystone pipeline had been operating at reduced rates. This was the third consecutive day that it was not working at full capacity and is one of the major oil exporting pipelines in Canada.
Moreover, there were also worries about tighter supplies because of ongoing repairs in South Dakota at a third-party power facility. There was a decline in Brent crude prices for September by 42 cents, as they came down to $106.93 per barrel. Meanwhile, a 2 cents decrease was recorded in the August price of US West Texas Intermediate (WTI) crude. This brought it down to $104.20 per barrel. The latter’s contract is also expiring on Wednesday.
As for the September WTI contract, it had come down by 54 cents to trade at a value of $100.20 per barrel.
Last week, there was a rise in gasoline inventories in the US, as they reached 3.5 million barrels. This was beyond the 71,000 barrel rise predicted by analysts. Government data also showed that product supplied of gasoline had come down 7.6% to 8.5 million barrels a day, as opposed to last year. This is considered a demand proxy.
Market analysts said that demand for gasoline is very low and this is because consumer confidence has taken a hit due to high prices. In June, people were shocked to see pump prices hit more than $5 per gallon. Data showed that instead of a rise in US crude inventories of 1.4 million barrels as predicted, they had reduced by 446,000 barrels.
There has been a lot of volatility seen in oil prices, as they have been seesawing between worries of demand falling due to an economic slowdown brought about by rising interest rates and supply concerns due to the sanctions imposed on Russia by Western nations.
Investors have been reducing their exposure to risky assets over concerns that the US Federal Reserve will continue to stay aggressive in terms of hiking interest rates. According to analysts, the tight oil supply is expected to continue supporting prices, while the shale oil production in the US is also expanding slowly.
Market analysts said that OPEC+ does not have a lot of room for expanding oil production, which means that the oil markets will face a challenge in the coming months. This is likely to keep prices high. Due to limited supply, Brent has remained above the $105 per barrel mark and has resulted in a wide backwardation of Brent inter-month spreads, bringing them to $0.40 per barrel.