Oil prices edged lower on Tuesday, retreating from the previous day’s gains, as worries about demand reemerged ahead of an anticipated recovery by analysts.
Brent and WTI Prices
Around 09:55 GMT, the price of Brent crude oil, for August delivery, was down 0.20% at $84.08 a barrel. Its American counterpart, West Texas Intermediate (WTI) crude, for July delivery, slipped 0.22% to $80.15 a barrel.
“Following yesterday’s impressive jump,” the current weakness in prices appears to be just a temporary reversal of the prevailing trend, driven by profit-taking, Tamas Varga of PVM Energy told AFP.
The previous day, Brent crude prices surged 1.97%, while WTI prices rose 2.40%.
Furthermore, according to the analyst, the recent “increase in U.S. inventories implies that summer demand has not yet taken off,” which supports a price decline.
Upcoming Data and Forecasts
The direction of prices will depend on the upcoming figures on U.S. reserves, to be released on Thursday by the U.S. Energy Information Administration (EIA) instead of Wednesday, due to a public holiday in the United States.
“There is a growing conviction that global oil inventories will soon start to decline, which should sustainably support oil prices in the second half of the year,” Varga said, and if the EIA report “shows declines across the board, this will be enough to push prices back up.”
Dollar Strength and Euro Weakness
The dollar was also gaining ground early in the session against the “weakness of the euro precipitated by the European parliamentary elections and the progress of the French far-right party,” with markets concerned about the potential economic fallout if it wins the legislative elections, as noted by the analyst.
The strength of the U.S. dollar, the currency in which crude oil is priced, increases the cost of oil for buyers using other currencies. This higher cost discourages purchases, leading to a downward pressure on crude oil prices.
Chinese Refinery Data
In addition, China’s National Bureau of Statistics (NBS) on Monday released data on crude oil processing by Chinese refineries for the month of May, which amounted to 60.52 million tons or 14.3 million barrels per day – a figure slightly lower than the previous month, notes Carsten Fritsch of Commerzbank.
The analyst warns that China’s crude oil processing could stagnate this year for the first time in two decades (excluding 2022, which coronavirus-related lockdowns impacted), translating into fewer crude imports.
He concludes that “the increase in Chinese demand for oil in the world could be significantly lower this year.”