President Biden is considering removing the gasoline tax. However, even with the President looking to protect demand, we continue to see the oil prices declining during today’s Asian and European sessions. This morning, the price of oil declined by 5.77% before finding some minor support. Currently, the price is down 4.5% on the day.
Overall, oil prices continue to move down within a larger bearish trend that initially formed on Jun. 9. The price has continued to decline with “lower lows and highs” and little resistance from buyers.
However, even as the price declines, the fundamental picture allows for potential further bullish movement. For example, the level of demand is still growing as the economy and consumers leave the coronavirus pandemic behind them. In addition, the supply is insufficient, according to experts, mainly due to sanctions and restrictions imposed by several countries on the Russian oil exports and the global insufficient production capacity.
Reports from Reuters advise that the US President will have a discussion with congress regarding the possibility of withdrawing gasoline tax for a period of time. This is aimed at reducing the pressure of high fuel prices on buyers, but it is not yet sure how other house members will respond to this possibility. The President is also scheduled to meet with major US fuel and energy companies. The meeting has triggered further uncertainty as there has been a lot of friction lately between the President and US fuel companies.
So, why has the price of oil declined significantly? Over the past two weeks, the oil price has declined by 14.40% - which can be credited to lower economic growth and higher interest rates. For example, as one of the biggest oil importers, China’s economic activity has been much lower than in previous months and years. It's a similar picture in the UK as well.
In addition, we are also facing a higher risk of a recession that has been in the spotlight over the past few weeks. Many economists are predicting a global recession towards the end of the year, and the Fed has already increased interest rates to lower demand. As far as oil prices go, we can already see they have been successful.
So, we can see here that the downward trend is not without reason. Nonetheless, some fundamentals could potentially support a further bullish trend. This is something that traders will be monitoring.
In the meantime, the price continues declining in both timeframes. Traders will, of course, be monitoring tomorrow’s oil inventories to see if the supply has increased or remained lower than expected.
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