Oil Price Fundamental Daily Forecast – Oil Companies Helpless When It Comes to Plunging Gasoline Demand

Sellers continue to pound U.S. West Texas Intermediate and international-benchmark Brent crude oil futures early Thursday after a government report on Wednesday showed gasoline demand fell and the rising number of COVID-19 cases pointed toward a slowing global economic recovery.

At 09:02 GMT, October WTI crude oil futures are trading $40.81, down $0.70 or -1.69% and December Brent crude oil is at $44.16, down $0.71 or -1.58%.

Today’s sell-off is a follow-up to yesterday’s plunge that saw both benchmarks falling more than 2%, with WTI sliding to its lowest close in nearly four weeks. Brent is currently trading at its lowest level since August 3. Both futures contracts changed their trends to down according to the swing chart technical indicator.

EIA Data Triggers Sharp Break

A weekly report from the U.S. Energy Information Administration released on Wednesday showed U.S. gasoline demand last week fell to 8.78 million barrels per day (bpd) from 9.16 million bpd a week earlier.

Crude oil inventories fell more than expected the week-ending August 28, but investors shrugged off that data due to the impact of Hurricane Laura, which likely skewed the results. Meanwhile, the focus remains on demand for gasoline and distillates.

EIA Weekly Inventories Report

The Energy Information Administration said on Wednesday that crude inventories fell by 9.4 million barrels in the week-ending August 28 to 498.4 million barrels, according to the data, compared with analysts’ expectations in a Reuters poll for a 1.9 million-barrel drop.

The decline was driven by a record fall in production, which dropped by 1.1 million barrels per day to 9.7 million bpd, its lowest since January 2018, as most U.S. offshore facilities were shut as a precaution ahead of Laura.

Gasoline stocks fell 4.3 million barrels in the week, the EIA said, compared with expectations for a 3 million-barrel drop.

Distillate stockpiles, which include diesel and heating oil, fell by 1.7 million barrels in the week, versus expectations for a 1.4 million-barrel drop, the EIA data showed.

Short-Term Outlook

Traders are primarily ignoring the headline numbers and focusing on the internals of the report. As mentioned earlier, the key market driver is the plunge in gasoline demand.

But in addition to that, refinery runs fell by 844,000 bpd and refinery utilization rates fell by 5.3 percentage points to 76.7% of total capacity, the EIA said.

Product supplied, a proxy for demand, was lower as well, which may restrain refiners from ramping up production.

There is nothing oil companies can do to ramp up demand, but they can delay any plans to ramp up production. OPEC, on the other hand, may have to revisit its plan to increase production if prices continue to fall.

The markets could become rangebound again over the near-term, but at much lower prices. In other words, the old bottoms for WTI and Brent are likely to become new tops.

For a look at all of today’s economic events, check out our economic calendar.