NAGA : Oil prices skid as Biden pushes for U.S. fuel cost cuts

U.S. President Joe Biden is urging refiners to cut fuel costs for consumers, amid which the cost of crude oil began to decline on Wednesday, June 22. Brent and WTI crude have recently lost up to $5 a gallon in anticipation of pressure from the U.S. government on the market. In addition, Biden called for a temporary repeal of the federal tax on each gallon of petrol.

Will the price of oil continue to decline?

Oil has been declining for several days in a row. The main reason for this is the uncertainty in the stock market, which is also under pressure due to high inflation and an increase in the Fed's key rate. The market reacts this way to the risks of reduced demand due to economic slowdown.

At the moment, the price of Brent and WTI oil has been at its lowest level since mid-May. There is speculation that it will continue to decline, but the ultimate cost of gasoline will not be significantly affected. ️

On Wednesday, June 22, Biden proposed eliminating the 18.4 cents federal tax on each gallon of fuel. However, the government does not support this initiative. Some believe that increased demand for fuel will trigger higher costs, so the tax cut will not affect the actual price of gasoline in the states.

Also, Biden is trying to influence significant refiners to force them to lower fuel prices. In response, Chevron Executive Director Michael Wirth said that criticizing the oil industry was not the way to lower fuel prices and that the government had to change its approach.

The U.S. government probably has no other leverage on the cost of oil and fuel yet.

What should traders expect?

Global supply is expected to continue to lag behind demand growth, as noted by trading giants Vitol and Exxon Mobil this week.

The International Energy Agency said Wednesday that the $2.4 trillion invested in energy this year includes record spending on renewables but cannot close the supply gap or address climate change.

Meanwhile, U.S. refining capacity fell in 2021 for the second straight year, the latest government data showed Tuesday, as power plant shutdowns continued to decline because of their ability to produce gasoline and diesel fuel.

This could mean that the decline in the value of oil is a temporary phenomenon. And soon, the commodity may start to rise in price again.

Conclusion

In the near term, fundamental macroeconomic factors, including this Thursday's EIA Crude Oil Stocks Change data, must be considered to predict oil prices. If crude oil inventories decline, it could trigger a rebound in crude prices.

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