There are two explanations for this significant drop in prices:
Two factors have thus caused the fall in prices after a day of fluctuations. The first is the news that the United Arab Emirates could obtain from the Opec+ an authorization to produce 465,000 additional barrels per day before the end of the year. In addition, members of the organization were recently considering collectively increasing production by 400,000 barrels per day, which would make a total of over 865,000 additional barrels per day. This announcement is expected next week.
It was this news that put pressure on prices at the start of the session, with an even sharper decline after the US Energy Information Agency (EIA) published a new drop in inventories for the week ended July 9, but above all an unexpected drop in gasoline demand. While last week, the increase in this same demand had reached records, analysts expected a continuation of this trend but, against all expectations, it has reduced by 765,000 barrels per day.
However, this was not really expected during this week, which includes the 4th of July long weekend, i.e. the weekend when there is supposed to be a lot of road travel in the US. However, this drop in gasoline demand inevitably impacted the price of a barrel, which fell 2% quickly.
A very different dynamic from the previous week:
Generally speaking, we can see that the market dynamics have changed compared to what they were last week. Investors are less optimistic due to the drop in gasoline demand.
However, some analysts are less pessimistic and indicate that while the Covid-19 Delta variant has alarmed demand and risk appetite and whilewhile a compromise is being reached between OPEC and the United Arab Emirates, higher crude oil prices are still possible.
To know how the situation in the oil market will evolve in the longer term, one will have to focus on the next major publications, including the OPEC+ meeting next week, which will set the tone as to whether or not production will increase in August.