Week in Review – July 22, 2022

This week saw a general downward trend, with a variety of bearish headlines keeping markets suppressed. The economy remains the focal point, with Europe, particularly under scrutiny. High energy costs and sanctions have severely harmed European manufacturing and services, slowing growth.

In the US, high fuel costs have caused demand to plummet – for the past two weeks, gasoline demand was below the same period in 2020, during a global pandemic. The industry was prepared for abundant summer gasoline demand, so the slowdown is causing prices to cool off. Diesel demand is in line with 2020 levels, though the pandemic had less impact on diesel demand two years ago.

Source: EIA

Although demand is weakening, the world is still short on oil supplies. This week brought some creative re-arranging of global oil products. Two US-sanctioned countries, Iran and Venezuela, are teaming up to boost output. Although few countries will trade with Iran, Europe has warmed up to allowing Venezuela to export crude oil in exchange for debt reduction, circumventing US sanctions. With Iran sending more oil to Venezuela to cover domestic needs, Venezuela can increase exports to Europe. Though only a modest improvement, the news fits well with the narrative of falling demand and slowly improving supply.

On the other hand, Saudi Arabia announced plans to increase its crude production to 13 million barrels per day in the coming years – while also warning the level would be an upper limit for the kingdom. Increasing output has always been a Saudi priority, but in years past, the country has hinted at having ample spare capacity to keep increasing seemingly indefinitely. This defined upper cap is bullish for oil markets since it means Saudi Arabia won’t be able to keep producing forever to balance global markets.

What does all this mean for consumers? It’s a lot of news to unpack. In the short-term, expect economic concerns to continue weighing on prices. As a recession becomes more evident and pervasive, prices could continue falling further. On the other hand, oil supplies are tight, and will likely be tight for years to come. If prices continue falling, it could present opportunities for companies to lock in lower fuel costs for several years, averting the inevitable price rebound coming once fuel demand improves.

Prices in Review

Crude oil prices began the week at $97.26, but climbed quickly above $100/bbl by the end of Mondays’ trading session. Prices have hovered in the $95-$105 range the past several weeks as traders have grappled with tight supply and floundering demand. Prices peaked at $104 on Tuesday before declining on Wednesday. Thursday brought a steep selloff, pushing prices as low as $96/bbl. That’s where crude opened on Friday morning, with a small weekly loss of 76 cents (-0.8%).

Fuel prices saw steeper losses this week, with diesel leading in downward movement. Diesel began the week with a strong opening price near $3.70, but quickly fell five cents on Monday. Losses continued each day, sending prices as low as $3.42 on Thursday before rebounding in the afternoon. Diesel opened at $3.59 on Friday, a loss of 10.9 cents (-2.9%).

Gasoline prices are also down this week, with the bulk of the losses coming on Thursday as the market digested the EIA’s data report. Opening the week at $3.2068, prices fell close to the $3/gal mark by Thursday before picking up. This morning gasoline traded at $3.15 at the opening, a loss of 5.7 cents (-1.8%).