Oil slides 4% as US gasoline demand shows signs of dropping off right in the middle of the summer driving season
- Oil tumbled by 4% on Thursday, after data pointed to a dropoff in demand for gasoline from cash-strapped motorists.
- Gasoline inventories rose unexpectedly in the latest week, indicating drivers are cutting consumption.
Oil slid by almost 4% on Thursday, under pressure from an apparent drop in US gasoline demand right at the height of the summer driving season.
Data from the US government on Wednesday showed an unexpected rise of 3.5 million barrels in national gasoline inventories — a sign energy traders interpret as being indicative of a decline in demand.
The number was well above expectations for a rise of just 71,000 barrels, according to analysts polled by Reuters.
US benchmark crude futures dropped 4.1% to $95.83 a barrel, marking their largest one-day slide in a week, while international benchmark Brent dropped 3.4% to $102.94 a barrel. Gasoline futures fell almost 6% to a three-month low around $3.018 a gallon.
Prices at the pump topped $5 a gallon for the first time in history across the country in June, fanned by surging oil prices and capacity constraints at domestic refineries. Since then, however, the average price of gas has dropped to $4.40 a gallon, according to the American Automobile Association, as drivers reined in consumption in the face of soaring prices for food and utility bills.
The period between Memorial Day and Labor Day typically marks the start of a peak in US demand for gasoline as people hit the roads for anything from day trips to long vacations, and a rise in inventories suggests this trend is slowing.
"US gasoline demand remains below where it was this time two years ago as historically high prices keep more drivers off the road than COVID-19 did in the summer of 2020," strategists at Saxo Bank said.
President Joe Biden last week visited Saudi Arabia to encourage the country's leaders of the world's largest exporter to increase oil production, with a view to taming politically unattractive energy prices at home. He returned empty-handed, and Riyadh stressed it was already pumping at close to capacity.
"American motorists are extremely frustrated with the high price of gasoline and want their president to bring them lower prices. Cue Joe Biden's recent visit to Saudi Arabia," market analysts at oil broker PVM said in a note.
"Despite not achieving the desired outcome, the Biden administration will take heart from the latest drop in energy prices. The national average price at the pump for US gasoline has fallen below $4.50/gal for the first time in nine weeks, according to the AAA," they said.
Crude prices have held above $100 a barrel for most of the past five months, after Russia invaded Ukraine.
Russia, which is the world's third largest producer of oil, has struggled to find buyers as energy consumers in its traditional markets of Western Europe and the US have either voluntarily shunned its exports, or have placed sanctions on them.
Soaring energy prices have aggravated already high inflation around the world, which now threatens to drag on global growth to the point that the oil market could switch from a deficit to a surplus by next year, according to market watchers.