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Crude Oil - Biden is Aiming for a Temporary Tax Removal

The latest news from the oil market is that President Biden may aim to remove gasoline tax. However, even with the president looking to protect demand, we continue to see the price of oil declining during today’s Asian and European sessions. This morning, the price of oil declined by 5.77% before finding some minor support. Currently, the price stands 4.5% lower than today’s market open.

Overall, the price of oil continues to move down within a larger bearish trend which originally formed on June 9th. The price has continued to decline successfully since then with “lower lows and highs”, and with little resistance from buyers.

Crude Oil - 22.06.2022.jpg

However, even as the price declines the fundamental picture allows for potential further bullish movement. For example, the level of demand is still growing as the economy and consumers leave the coronavirus pandemic behind them. In addition to this, the supply is insufficient according to experts, mainly due to sanctions and restrictions imposed by a number of countries on the Russian oil exports, and the global insufficient production capacity.

Reports from Reuters advise that the US President will have a discussion with congress regarding the possibility of withdrawing gasoline tax for a period of time. This is aimed at reducing the pressure of high fuel prices on buyers, but it is not yet certain how other members of the house will respond to this possibility. The President is also scheduled to meet with major US fuel and energy companies. The meeting has triggered further uncertainty as there has been a lot of friction lately between the President and US fuel companies.

So, why has the price of oil declined significantly? Over the past 2 weeks, the price of oil has declined by 14.40% - which can be credited to lower economic growth and higher interest rates. For example, as one of the biggest oil importers, China’s economic activity has been much lower than in previous months and years. It's a similar picture in the UK as well.

In addition to this, we are also facing a higher risk of a recession which has been in the spotlight over the past few weeks. Many economists are predicting a global recession towards the end of the year, and the Fed has already increased interest rates in an attempt to lower demand. As far as oil prices go, we can already see they have been successful.

So, we can see here that the downward trend is not without reason. Nonetheless, there are also fundamentals which could potentially support a further bullish trend in the future. This is something that traders will be monitoring. In the meantime, the price continues to decline and remains in the red on both timeframes. Traders will, of course, be monitoring tomorrow’s oil inventories to see if supply has indeed increased or remained once again lower than expected.

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