Crude Oil, WTI, Gasoline, Summer Driving Demand, Technical Outlook - Talking Points
- Oil prices extend slide to a third day as demand worries mount
- Record-high gasoline prices compete with pent-up travel demand
- WTI prices are threatening to break below a key trendline
Oil prices are moving lower for a third day, pulling back further from the highest levels traded at since early March as traders grow increasingly concerned about potential pullbacks in demand. While consumer activity remains healthy, supported by pent-up demand following years of Covid-19 lockdowns, sky-high gasoline prices are starting to worry markets.
A drop in gasoline demand is likely to translate to a drop in oil demand. That is because around 40% of a barrel of crude oil is refined into gasoline, according to the U.S. Department of Energy (DOE). The Memorial Day weekend is regarded as the start of the summer driving season when many families hit the road to travel.
Those travel plans may be scaled back this summer, however. 90% of Americans surveyed by the American Hotel & Lodging Association (AHLA) say they will take gas prices into consideration for their summer travel plans, with 57% saying they are likely to take fewer trips for leisure. Gasoline prices have only increased following the survey, with prices hitting a new national average record of $4.67 a gallon, according to AAA.
Meanwhile, U.S. oil production continues to climb, albeit modestly. The Energy Information Administration’s most recent monthly report showed that domestic oil production increased by more than 3% in March to the highest level since November 2021. The increased production, combined with a potential for destruction in demand from motorists this summer, could help to keep a lid on oil prices.
The Biden administration is reportedly mulling a decision to allow refineries to keep producing winter-grade gasoline, which is cheaper to produce versus summer-grade gasoline. That move, however, would only have a marginal impact on pump prices, perhaps 10- to 15-cents per gallon. Mr. Biden may have already opted to forego that action, as federal law dictates the changeover to occur on June 01. The President may see the environmental impact outweighing the potential benefit to gas prices. Summer-grade gasoline helps to reduce smog.
Events to Watch this week for oil prices:
- U.S. EIA crude oil inventory data
Crude Oil Technical Forecast
Oil prices are testing a trendline that has influenced price action since late 2021, following a break below the 23.6% Fibonacci retracement. The 20-day Simple Moving Average (SMA) may offer a layer of confluent support. However, if that support breaks, prices may test the 50-day SMA. The MACD oscillator appears to be on track to cross below its signal line, while the RSI oscillator is nearing a cross below its 50 mid-point.
Crude Oil Daily Chart
Chart created with TradingView
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--- Written by Thomas Westwater, Analyst for DailyFX.com
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