Oil Prices Fall Despite Promising Demand

Oil prices fell on Thursday on demand concerns even after two influential international groups are still defending predictions for strong demand this year and next.

Brent crude the international standard, fell 3.7%, to $90.65 a barrel, while West Texas Intermediate the US benchmark, fell 3.9%, to $85.02 a barrel. Both rose about 1% on Wednesday.

The oil market is overreacting to several woes and concerns either due to expected supply tightness or, as currently is the case, worries about weaker oil demand due to the threat of recession. This prevalent environment has certainly triggered a sharp pullback in price actions.

Oil prices fell on Thursday morning after the US Rail Union reached an agreement with workers, so, the US economy could avoid a disastrous rail strike.

WTI fell on Thursday to $84.97—a $3.5 (-3.97%) loss on the day, but it later managed to trade at $85.23 per barrel as at the time of writing versus Wednesday’s closing price at $ 88.48. Brent crude fell to $90 at the time of writing, a drop of $4 (-3.79%) on the day versus Wednesday’s closing price at $93.85.

The news that the United States would refill the Strategic Petroleum Reserves with sub-$80 oil also impact crude prices. The White House sources suggested earlier that the SPR would be refilled when oil fell below $80 per barrel, the Department of Energy said it had no plans to refill the nation’s Strategic Petroleum Reserves until after Fiscal 2023. The agency also said there was no $80 price trigger.

The news that the United States could soon purchase more than a hundred million barrels of crude oil to replenish crude that has been released over the last few months sent a strong bullish signal to the market that demand could soon increase, while U.S. production isn’t expecting significant increases. The DOE’s denial of any such a plan has stripped away the promise of a quick demand spike.

Another price pressure is the strengthening US dollar in the runup to what many expect will be a sizeable interest rate hike when policymakers meet next week. The general expectations are that the Fed will raise rates by 75 basis points.

Oil prices continue their volatile trade as the oil markets vacillate between worry about a global recession and a tight supply situation exacerbated by Russia’s invasion of Ukraine and resulting sanctions on its energy products.