The price of oil has been going downwards for the past few months continuously. On Friday, the 4th of August the oil price fell nearly 3 percent, which marked the lowest weekly decline since June. During the height of the COVID-19 pandemic when most governments of the country imposed lockdown, demand for oil contracted overnight leading to a huge decline in price. Thereafter, as situation around the globe got better the oil prices seemed to stall. But as concerns grew in recent weeks about a slow economic recovery from the COVID-19 pandemic and added worries about weak oil demand resulted in another contraction of the oil price.
On Saturday morning (10:30 am IST), US West Texas Intermediate (WTI) crude oil price was marked around 3.87 percent lower marking at $ 39.77. While Brent Crude, the international benchmark, stood at $ 42.66 (-3.2 percent) a barrel.
Several reasons resulted in the price drop of oil. The US job growth slowed even more in August as financial assistance from the government ended.
According to numbers by the economic times, nonfarm payrolls increased by 1.37 million jobs last month. The employment still remained 11.5 million less than the pre-pandemic level. The jobless rate was marked by 4.9 percentage points higher than that in February.
John Kilduff, the partner at Again Capital in New York, was reported to say, “The hopes for more stimulus are going out the window. We need to see economic activity back up to get demand flowing.”
Hurricane Laura resulted in a shortage of demand for oil. According to a report by the Energy Information Administration (EIA) on Wednesday, crude oil inventory draw of 9.4 million barrels for the week to August 28, due to the hurricane. Last week’s inventory decline of 4.7 million barrels was reported. American Petroleum Institute on 1st September also reported a 6.36-million-barrel draw.
The Energy Information Administration (EIA) report also showed that gasoline demand had also plunged during the week that ended on August 28. On the week that ended on August 21st, gasoline price went above 9 million barrels per day for the first time since June since when the price started to stall. On the week that ended on the 28th of August, the gasoline price was marked at 8.786 million barrels per day.
Paola Rodriguez-Masiu, an analyst at Rystad Energy, said to economic times, “The bigger market picture is the overall bearish sentiment that kicked off with lower gasoline demand reports on Wednesday.”
The price also went down because of the lower refinery runs and the upcoming refinery maintenance season when the oil prices are expected to contract the demand for crude oil. The sudden US dollar strength can also be accounted for the drop in oil prices.
Russian Energy Minister Alexander Novak predicted that the global oil demand could fall by 9-10 million barrels per day. He also said that the prices would stay in the $50-$55 per barrel range next year, as the world continues to grapple with the pandemic and as an emphasis on renewable factors more into the energy landscape.
In July, Reuters reported that oil output cuts were found to be around 97 percent. In August, OPEC+ with compliance with the reduction of oil demand reduced the production of barrels per day to 7.7 million, while previously the production was at 9.7 million barrels per day.
Also rise of awareness to climatic change by the industrialists resulted in a drop in the price in recent months. The effect has been so much that several industries are seeing off investments in recent years.
Oil prices are predicted to stoop lower in the upcoming weeks. The industry is showing no signs of immediate revival.