International crude oil prices have fallen significantly recently. On August 1, Brent crude oil futures fell by -9.07% in a single day, the largest decline since July 6. After the much-watched OPEC+ meeting on August 3 announced good news of only a slight increase in production of 100,000 barrels per day, it once showed an upward trend during the session. However, as EIA data showed that U.S. crude oil and gasoline inventories unexpectedly increased, gasoline demand increased significantly. The decline reversed the early gains in oil prices brought about by this good news, and fell by nearly 4%. On August 4, as economic data remained weak and market concerns intensified that the slowdown in global economic growth might curb demand, international oil prices continued to fall, with WTI closing below $90 per barrel for the first time since February 10. At present, the crude oil market should focus on the following aspects:
1. OPEC+ weighed the limited remaining production capacity and only increased production slightly by 100,000 barrels per day.
The meeting noted the dynamics and rapid changes in oil market fundamentals, noting that the availability of spare capacity is severely constrained and must therefore be used with great caution to cope with severe supply disruptions. Particularly in the Middle East, chronic underinvestment in the oil industry has reduced spare capacity in the value chain. OPEC+ has only delivered on a fraction of its pledge to increase production in recent months, as only Saudi Arabia and the United Arab Emirates have been able to increase production. According to data, OPEC+’s daily output is nearly 3 million barrels less than its May target of about 42 million barrels. Nigeria, Angola and other countries face chronic underinvestment, declining wells and limited production. Moreover, Saudi Arabia, the member state with the largest spare capacity, is also approaching the limit of its production capacity. Therefore, the increase of 100,000 barrels per day is, on the one hand, because OPEC+ has taken into account the current situation of its own production capacity, and on the other hand, it also has symbolic production significance, because the United States hopes that the organization will increase production to reduce oil prices.
2. U.S. commercial crude oil and gasoline inventories rose more than expected, triggering concerns about slowing demand
In the week of July 29, U.S. commercial crude oil inventories (excluding strategic petroleum reserves) totaled 426.553 million barrels, an increase of 4.47 million barrels or 1.06% from the previous week. Since this year, the low inventory rate of U.S. crude oil has continued to provide positive support for oil prices. However, during the current peak summer travel season, U.S. commercial crude oil inventories have ended a two-week downward trend and have increased. The total U.S. gasoline inventory is 225.294 million barrels, which is 225.294 million barrels. The weekly increase of 160,000 barrels has intensified market concerns about slowing demand and accelerated the decline in oil prices.
3. After the Federal Reserve started its interest rate hike cycle, the U.S. dollar index continued to strengthen
On August 3, the US dollar index reached 106.48, the highest since July 25, a sharp increase of 10.67% from January 3 this year, and the US dollar index continued to strengthen. As we all know, commodities are priced in US dollars, and oil prices have a significant negative correlation with the US dollar index. The Federal Reserve currently has no new interest rate hikes in August, but will continue to raise interest rates in September. Against the background of interest rate hikes, the U.S. dollar remains strong, which will have a continued negative impact on oil prices.
4. Negotiations between the United States and Iran were restarted on August 4, and there were positive signs that were not good for oil prices.
Iranian and U.S. officials said they would travel to Vienna to resume indirect talks on Iran’s nuclear program, rekindling hopes of lifting sanctions that have hampered Iran’s crude exports and putting upward pressure on oil prices.
To sum up, the upward resistance of international crude oil prices has increased significantly due to recent economic and demand concerns, but bottom support still exists, and the probability of a continued sharp decline in oil prices is low. At present, there is no positive benefit from a significant increase in the supply side, and there is a negative confrontation with demand concerns, and a back-and-forth performance is still possible.