In recent weeks, the demand for fuel in the United States has witnessed a consistent downturn, posing challenges for the oil industry. Gasoline demand in the U.S. fell by 1.4% compared to the previous week, and it dipped 5.5% below the average of the prior four Wednesdays, according to insights from GasBuddy’s Patrick De Haan. While this decline offers a welcome reprieve for consumers by contributing to lower gas prices at the pump, it raises concerns for oil enthusiasts as reduced fuel consumption equates to diminished demand for oil.
The impact of weakened demand is also reflected in inventory data for fuel products. The Energy Information Administration (EIA) reported a substantial increase in gasoline stocks by 5.42 million barrels for the week ending December 1. In response to this news, gasoline futures (/RBF4) experienced a notable drop of nearly 4%. Distillate stocks, too, registered a rise, climbing by 1.27 million barrels.
However, relief from subdued prices may not be forthcoming from the supply side either. Recently, Russia and the Organization of the Petroleum Exporting Countries (OPEC+), collectively known as OPEC+, reached an agreement for voluntary production cuts amounting to 2.2 million barrels per day (bpd), extending through the first quarter of the upcoming year. This includes an extension of Saudi Arabia and Russia’s prior voluntary cut of 1.3 million bpd.
Despite these efforts, the market response was less enthusiastic than anticipated, evident in the sell-off of crude oil prices post-announcement. In response to the market reaction, Moscow and Riyadh jointly called on other OPEC members to collaborate in enforcing production cuts. However, oil prices saw only a marginal increase during New York trading, remaining below the $70 per barrel mark.
The question on the minds of industry observers is whether OPEC leaders will take further action if prices continue to slide. The possibility remains, and potential strategies could involve extending the voluntary production cuts, adjusting the volume of cuts, or implementing stricter enforcement measures. Yet, challenges persist as the U.S. maintains record-high production levels, and economic growth in China softens according to the latest trade data, complicating matters for the cartel.
On the technical front, the outlook for oil appears challenging, with prices trending below key moving averages and oscillators indicating a downward trend. Despite the current gloom, potential support levels around the 64-66 zone, established earlier in the year, may present an opportunity for buyers. Traders are advised to exercise caution and consider waiting until prices approach these levels before establishing a position. Alternatively, selling a put spread is suggested as a strategy to navigate the oil market‘s current state with a neutral to bearish stance while capitalizing on recent volatility.