Crude oil’s plunge wipes out YTD gains; gasoline sinks to near three-year low

Crude futures fell Tuesday to their lowest level this year, as concerns about weak global demand, particularly in top oil importer China, coincided with the likelihood that OPEC+ will boost production next month.

Commodities prices fell broadly after Goldman Sachs warned that copper prices would suffer a sharp correction because of dwindling Chinese demand, an analysis that sends a message of concern about the Chinese economy, and then for Chinese oil demand as well.

“The fact that recent data shows no signs of any acceleration in import demand in China, Europe or North America points to a situation where the oil market is not going to be as tight as expected a few months ago,” StoneX analyst Fawad Razaqzada said, as reported by Dow Jones.

“The excess supply will need to be worked off either through reduced oil production or a sudden lift in global economic recovery. Neither of these scenarios appear likely or imminent,” Razaqzada said.

OPEC and its allies are due to add 180K bbl/day to supplies within weeks as they gradually restore production, according to delegates involved in the discussions.

“We see OPEC+ in an unusually difficult situation since their resolve to support oil pricing is being challenged by a continued loss of market share to non-OPEC producers for a lengthy period of time,” Ritterbusch analysts said, according to Dow Jones. “This implied loss of revenue when accompanied by a lower pricing environment will be upping concerns over budgetary requirements among key OPEC producers.”

Reports also pointed to progress toward a deal to resolve a dispute that has halted Libyan crude production and exports, as Libya’s legislative bodies were said to have agreed to appoint a new central bank governor within 30 days.

A return of Libyan oil “would obviously conflict with OPEC bringing their barrels back,” Mizuho’s Robert Yawger said, Dow Jones reported. “If you bring them both back at the same time it’s obviously an oversupplied market.”

Front-month Nymex crude (CL1:COM) for October finished -4.3% to $70.34/bbl, its largest one-day dollar and percentage loss since November 16 and lowest close since December 13, and front-month November Brent crude (CO1:COM) ended -4.8% to $73.75/bbl, its biggest one-day dollar and percentage decline since October 4 and lowest settlement value since December 12.

ETFs: (NYSEARCA:USO), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (USOI), (NYSEARCA:UGA)

Also, front-month Nymex RBOB gasoline (XB1:COM) for October delivery sank to near three-year lows, settling -5.5% to $1.9777/gal, its biggest drop since October 4 and lowest close since December 3, 2021.

The end of the summer driving season in the U.S. combined with ample inventories to put pressure on gasoline, Rabobank strategist Joe DeLaura told Reuters.

Gasbuddy’s Patrick De Haan said the sharp decline in oil prices could push retail gasoline to its lowest since 2021 by the end of October.