Demand for oil and key products like gasoline is waning, sending global crude prices to nine-month lows on Tuesday. As U.S. markets reopened after the Labor Day holiday, which marks the end of summer and the return to business as usual, prices plummeted.
Labor Day typically signals the end of the "summer driving season," a period of peak gasoline demand and higher prices. However, in 2024, this trend has not materialized.
U.S. gasoline futures dropped nearly 6% on Tuesday, reaching near three-year lows. Other parts of the oil market also experienced significant sell-offs. The decline in oil prices will likely put downward pressure on domestic prices and the share prices of listed refiners and retailers, Viva and Ampol.
Gasoline futures closed at their lowest level since December 2021, when pandemic restrictions were easing. October gasoline futures on Nymex settled 5.5% lower at $1.98 per gallon, marking the largest single-session losses since July 2022.
Gasoline's slide was the most pronounced among the broader energy market sell-off on Tuesday. Ample inventories have weakened prices, and this trend is expected to continue into the U.S. autumn.
The slump saw U.S. crude oil futures fall 4.4%, or $3.21, to $70.324 a barrel on Tuesday, the lowest settlement since last December. November Brent crude, the global benchmark, slid $3.91 to $73.61.
Traders reported that the slump was triggered by the resolution of disputes that led to lower Libyan oil output and exports. This eased supply constraints, while weak manufacturing data from China reignited concerns about poor demand in the world's top oil-importing nation.
If oil futures prices remain at this level, U.S. retail gasoline prices could drop to their lowest since 2021 by the end of next month, according to oil traders. This would ease U.S. inflationary pressures and might even bring the CPI and other measures back to 2% by year's end. In turn, this could raise hopes for another rate cut in December.
U.S. gasoline stockpiles totaled 218.4 million barrels by late August, slightly above a year ago. This indicates that the driving season did not draw down reserves as it typically does.
Adding to the pressure on oil prices is the looming decision by OPEC+ to begin returning 2.2 million barrels per day of voluntary cuts to the market starting in October, depending on market conditions. The cartel is supposed to return 83,000 barrels per day monthly for the fourth quarter, but the price decline makes this move increasingly unlikely.
Helima Croft, Head of Global Commodity Strategy and MENA Research at RBC Capital Markets, noted that given the resurgent demand concerns, it might be prudent to wait until December before implementing the taper. China's underperformance has dented 2024 growth projections and has continued to trail both 2023 crude import and refinery throughput levels.
