Crude Oil Slumps; Biden Administration Looks to Cut Fuel Prices

© Reuters.

By Peter Nurse

AiVIF.com -- Oil prices slumped Wednesday, weighed by plans from the Biden administration to bring down U.S. fuel costs amid fears of a global economic slowdown.

By 08:50 a.m. ET (1250 GMT), U.S. crude futures traded 6.3% lower at $102.64 a barrel, while the Brent contract fell 5.7% to $108.02 a barrel. Both benchmarks have fallen to levels last seen in mid-May.

U.S. Gasoline RBOB Futures were down 3.1% at $3.6773 a gallon.

President Joe Biden is expected later Wednesday to ask Congress to consider a three-month suspension of the 18.4 cents per gallon federal tax on gasoline and also ask states to suspend their fuel taxes.

That said, it’s debatable how successful this move will be in putting downward pressure on global prices as the removal of taxes could easily boost demand from U.S. drivers.

Biden is also scheduled to meet the CEOs of seven major oil companies on Thursday to discuss ways to increase production capacity, attempting to reduce the fuel prices of around $5 a gallon as this looks like becoming a political hot potato as the midterm elections draw near.

Also of interest will be the testimony from Federal Reserve Chair Jerome Powell in Congress on the state of the economy, as concerns of an economic slowdown in the U.S. grow.

“A more aggressive approach from the U.S. Fed, in order to try to rein in inflation has not helped [the oil market], with it likely to prove challenging for the Fed to bring inflation down without a hard landing,” said analysts at ING, in a note.

So far demand remains very strong, with a historic high of 42 million people expected to hit the roads in the United States over the July 4 Independence Day weekend, according to the AAA.

Additionally, China reported the fewest daily COVID-19 cases in more than four months on Tuesday. Although the threat of restrictions remains as cities move swiftly to stamp out any flareups, demand is likely to grow in the second half of the year at the world’s largest importer of crude.

Although $2.4 trillion is set to be invested in energy this year, this will still fall short of plugging a supply gap and tackling climate change, the International Energy Agency said on Wednesday.

“Oil fundamentals remain constructive with the oil market expected to continue to tighten through the year as the EU’s ban on Russian seaborne crude starts to increasingly bite,” added ING. “Although, how tight the market will be really depends on how willing the likes of China and India are to pick up heavily discounted Russian crude.”

Weekly U.S. petroleum inventory data are due from the American Petroleum Institute later Wednesday, a day later than usual following Monday’s holiday.