Oil drops for second day in a row after hitting $80 per barrel

offshore oil

Oil prices dropped this Wednesday for the second day in a row after the European benchmark reached its highest point; a three-year-high-record of $80 per barrel. On this Wednesday, the news of higher-than-expected crude inventories and concerns of slowing Chinese economy had an impact on oil prices.

According to Reuters, Brent crude lost 62 cents, 0,8%, and settled at $78,47 a barrel. On Tuesday, it fell almost $2, after touching its highest point in nearly three years, at $80,75 per barrel. In contrast, the U.S. benchmark, the West Texas Intermediate (WTI), dropped 40 cents, 0,5%, and settled at $74,89. It fell 0,2% in the previous session.

As reported previously, oil prices have been in a rally as global economies recover from the pandemic and lockdowns and mobility restrictions ease. However, hurricane disruptions and tighter supply have also boosted them.

Moreover, just last week, U.S. oil, gasoline, and distillate stockpiles rose last week, according to market sources quoted by Reuters. Nevertheless, analysts expect that crude stockpiles in the U.S. had been more substantially drawn in recent weeks. The Energy Information Administration is due to release such information later on the week.

Such a draw could push oil prices further, as it is a sign of stronger demand. Jeffrey Halley, senior market analyst at OANDA said. “With the relative strength indexes on both contracts in overbought territory yesterday, the odds of a speculator-driven pullback were high.”

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Oil could have an impact amid housing crisis in China and OPEC increased production

In addition, amid a landscape of $80 a barrel, it could add some pressure to the production increases agreed by the Organization of Petroleum Exporting Countries. When officials from OPEC meet last week, they might decide to keep supply tight.

Furthermore, ANZ Research said in a note. “While the supply backdrop has not changed much, oil prices hitting $80 per barrel would see pressure building for OPEC+ nations to increase their production quota.” Indeed, OPEC said on Tuesday that oil demand is forecast to rise strongly for the next few years.

Consequently, the world would need to keep investing in oil production to avert a crunch, even in the face of the energy transition, OPEC said.

Finally, the crisis coming with increasing natural gas prices and the weakened economy in China after its housing market plunge could have an impact on oil prices. China is the second-biggest consumer of oil, only after the United States.

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