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Oil Prices Slump as Gasoline Reserves Spike
21.07.2022

The price of oil is experiencing significant declines during today’s Asian and European Session. This week, the asset started strong, with bullish price movements but has lost most gains during today’s decline which is measuring 4.32%.

Overall the price has been declining since the 9th June after the price reached a new price high for the year. Since the price reached a high of $121.41 per barrel, the instrument witnessed a decline of 20.66%. However, according to analysts the instrument is being influenced by opposing factors and still bears the possibility of an upward trend as well as further bearish price movement.

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Over the past 24 hours investors have been focussing on the latest crude oil inventories. The data confirmed by the Energy Information Administration of the US Department of Energy put pressure on the positions of Crude and Brent Oil. In particular, oil reserves decreased by 0.446M barrels, and distillates — by 1.296M barrels, while gasoline reserves in the USA immediately increased by 3.498M barrels, which worries investors, since such a rapid drop in gasoline demand during the summer car season can mean serious problems in the national economy. Probably, the population cannot pay for fuel at the new high tariffs, which threatens to further reduce its sales.

In addition to this investors are also evaluating the resumption of production at a number of fields in Libya. Previously Libya had been a major supply of oil to the global economy but has produced far less over the past decade due to conflicts and civil war. Demanding on how much the country is looking to pump will determine how much pressure may be exerted on the asset.

In general, medium-term factors contribute to the continuation of the downward trend, but the long-term prospects still leave room for another bullish trend according to analysts. The possibility of reducing the supply from Russia due to the growing economic sanctions imposed against the background of the escalation of the military conflict in Ukraine, as well as the reluctance of OPEC to significantly increase production, may create a shortage of energy supply. However, it should be noted that it also depends on the economic activity and the possibility of a recession. Both factors can potentially lower the level of demand.

The Federal Reserve is predicted to increase its Fund Rate by at least 75 basis points within the next week and the European Central Bank has increased interest rates for the first time in 11 years. The ECB has also opted to increase its rates by 50 basis points rather than 25. Many traders will be evaluating whether this will have the desired effect and lower demand and inflation. If that’s the case, further pressure again may be piled onto the asset.

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