Oil markets rocketed lower once again yesterday following a wave of bearish economic indicators worldwide and the EIA’s inventory report. WTI Crude is recovering some ground, trading at $52.13, a gain of $1.04.
Fuel is up marginally, following crude higher. Diesel is trading at $1.7599, up 0.7 cents. Gasoline is trading higher at $1.6419, up 2.2 cents.
Yesterday saw a wave of interest rate cuts from major countries, signaling concerns about the economy. Interest rate cuts make it easier to acquire money and credit, facilitating business growth. Several countries including India, Thailand, and New Zealand chose to cut rates yesterday, adding to concerns that central banks expect an economic slowdown. The cuts were also a response to China’s yuan falling in value, which has a ripple affect through developing countries. The battle between the US and China is not isolated – both countries are deeply connected to the global economy, so any issues will send shockwaves throughout the world.
Adding to the bearish sentiment was an EIA report that showed counter-seasonal across-the-board builds in oil stocks. While the API’s data showed normal seasonal trends, the EIA reflected a weakening market, particularly in the gasoline space. While demand remained healthy, production also stayed quite high, leading to a large surprise build.
Today, however, markets are beginning to bounce back. Saudi Arabia has announced plans to substantially cut their output in September and is rallying other OPEC members to do the same. Middle Eastern governments still rely on oil revenue to fund their spending, so they need higher prices to avoid deficits. As markets continue dropping, expect Saudi Arabia and the rest of OPEC to pitch in to bring the market back into balance.