DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange plummeted Thursday, sending West Texas Intermediate futures below $90 per barrel (bbl) for the first time since the beginning of the Russian invasion of Ukraine as investors refocused on global recession fears, rising inflation, and building crude oil inventories in the United States.

Despite falling gasoline prices, American motorists did not come back to the gas pumps last month, according to U.S. Energy Information Administration data released on Wednesday showing that four-week average gasoline consumption fell to its lowest since late February -- typically the weakest driving season of the year. At 8.5 million barrels per day (bpd), the weekly demand rate is nearly 12% below the same period last year and some 9% below the five-year average. On July 25, the American Automobile Association published results of a 1,000-person survey, finding that responders have sharply curtailed driving activity in the face of $4-plus gasoline. The same quarterly survey in March also identified $5 gas as a key sensitively level for some change in driving behavior.

Supporting this argument, U.S. consumer sentiment fell to the lowest level on record at the start of the summer and remained at depressed levels throughout July as Americans fretted over the economy, inflation, and rising interest rates. "Consumers across income, age, education, geographic region, political affiliation, and homeownership status all posted large declines. About 79% of consumers expect bad times in the year ahead for business conditions, the highest since 2009," the Consumer Sentiment report from June stated.

As the summer driving season draws to a close in the coming weeks, these trends do not bode well for U.S. gasoline consumption in the second half of the year.

Oil futures attempted to break higher earlier in the session, but the rally quickly sizzled despite Saudi Aramco, the world's largest oil exporter, sharply raising its flagship crude prices for Asian buyers.

Saudi Aramco lifted its official selling prices for September loading to a record $12.15-per-bbl premium versus the Dubai/Oman benchmark, up from a premium of $11.35 per bbl in the prior month. Markets were mostly expecting the differential at $10.80 per bbl over the regional benchmark. The larger-than-expected price hike signals that market fundaments remain robust for now despite expected demand losses in the second half of the year. For Northwest Europe, Aramco cut its flagship crude prices to $6.50 per bbl over international benchmark Brent from an $8-per-bbl premium the prior month, while also lowering selling prices for the Mediterranean. For the U.S. cargoes, differentials over Argus Sour were raised to a premium of $7.50 per bbl from a $7-per-bbl premium in August.

The Saudi price move follows a decision by OPEC+ producers to raise crude output by a minuscule 100,000 bpd for September -- less than a quarter of the 432,000-bpd monthly increase the market has been accustomed to over the past year and much less than 648,000 bpd hike announced for July and August. The decision was based on the fact that many OPEC+ members have limited capacity to meaningfully increase production, according to the document released by the group.

The only two members of the coalition that have the ability to raise production are Saudi Arabia and the United Arab Emirates, but they would do so only if the supply crisis worsened, according to sources close to negotiations.

At settlement, nearby-month delivery WTI traded fell $2.12 to $88.54 per bbl -- the lowest since Feb. 2, while the international crude benchmark Brent contract for October delivery declined $2.66 to $94.12 per bbl. NYMEX September RBOB dropped 11.87 cents to $2.7935 per gallon, while NYMEX September ULSD contract slumped 7.76 cents to $3.3372 per gallon.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges can be reached at liubov.georges@dtn.com