However, the focus has been on the decline in US gasoline demand in recent weeks, after the national average price hit a record $5 a gallon in mid-June. This, combined with fears of a recession, have weighed on WTI crude prices. The U.S. benchmark this week saw its biggest decline in more than three years compared with international benchmark Brent crude. That escalating demand for gasoline has weighed on WTI, while Brent prices have reflected tight global natural supplies, boosted by Russia’s war in Ukraine and Western sanctions, as well as the European Union’s ban on Russian oil set to take effect before the end of the year. WTI’s biggest discount to Brent in three years is leading to a rise in US crude exports, which hit a record high of 4.5 million barrels per day (bpd) in the week to July 22. The latest data, however, shows that the gasoline demand catastrophe is not as clear-cut as it first appeared, with the four-week average gasoline demand still trending upward, according to EIA data. Despite signs of downward pressure on WTI crude prices, the lowest U.S. oil inventories in years – for some products in decades – are a strong bullish driver for oil prices, although it is not a given that it could offset the market fears of recession. In the latest reporting week to July 22, commercial crude oil inventories fell by 4.5 million barrels, EIA data showed. At 422.1 million barrels, U.S. crude oil inventories are about 6% below average for this time of year. In gasoline, inventories fell by 3.3 million barrels last week and are about 4% below the five-year average for this time of year. Spirits, which include diesel, have been the tightest market this year, with current inventory levels 23% below the five-year seasonal average. Fuel oil distillate inventories, which are more closely related to the economic cycle, are at their lowest level for the time of year since 2000, according to data compiled by Reuters market analyst John Kemp. So far in the third quarter, distillate inventories have increased by less than 1 million barrels, an unusually low rate of stockpiling. This is one of the tiniest distillate stock builds of the last four decades, Kemp notes. An economic slowdown could help balance these very low distillate inventory levels, but rebalancing could require a deeper and longer downturn in activity, Kemp argues. Indeed, the US economy is slowing down. The advance estimate from the US Commerce Department showed on Thursday that GDP shrank 0.9% in the second quarter, following a 1.6% drop in the first quarter. In theory, the GDP figures met a common definition of a recession – two consecutive quarters of GDP contraction. But policymakers insist the “technical” recession is not a broad-based recession because many areas of the economy are still strong, especially the labor market, and the external conditions pushing inflation higher are unique. “When you’re creating almost 400,000 jobs a month, that’s not a recession,” U.S. Treasury Secretary Janet Yellen said on NBC’s Meet the Press last weekend, days before the GDP data was released. Policymakers admit there is a slowdown, but the US economy shows no broad-based signs of recession. “I don’t think the U.S. is currently in a recession. And the reason is that there are so many areas of the economy that are performing very well,” Fed Chairman Jerome Powell said at a news conference this week after the Fed announced another 75 -Increase in basic interest rates. “Actually growth was extremely high last year, 5 and a half percent. We would have expected growth to slow. There’s also more of a slowdown now,” Powell said, reiterating the Fed’s goal of a “soft landing.” “If you think about what a recession really is, it’s a broad decline in a lot of industries that’s been going on for more than a couple of months and there’s a bunch of concrete tests on that. And it just doesn’t look like that,” the Fed chairman added.
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