Oil supply and demand have been affected in June due to renewed fears about the spread of COVID-19, lockdowns in China, and the expected global economic slowdown as a result of the Russia-Ukraine war, added the report. 

Brent crude oil closed below the $100 per barrel for the first time in three months on 12 July, led by a stronger US dollar along with fresh coronavirus restrictions in China, the report noted. 

“The USD reached parity with the Euro for the first time in two decades, while the US dollar index also reached the highest level in 20 years against a basket of currencies. Moreover, the decline in oil prices came despite limited increase in supplies from the OPEC as well as from the US resulting in tighter markets, while sanctions on Russia continued to restrict oil flows from the region,” the report explained.

The anticipated slowdown in global economic growth has also affected the direction of the oil market, with the managing director of the International Monetary Fund (IMF) reiterating in July that the fund is about to downgrade the global economic outlook for the third time since the onset of the war in Ukraine, driven by the impacts of the conflict, elevating inflationary wave, and supply chain disruptions.

"Fears of recession have forced hedge fund managers to sell oil-related derivatives to the tune of 201 million barrels over the last four weeks, according to position records published by the Intercontinental Exchange Futures US and the US Commodity Futures Trading Commission (CFTC). However, derivatives of refined products saw strong support due to limited refinery capacity as well as low inventory levels,” the report continued.

Furthermore, inflation in the US has reached a 41-year high in June, recording 9.1 percent and resulting in expectations of another spike in interest rates in the coming months, the report stated.

“The bulk of the increase in inflation was attributed to rising fuel costs that added 200 bps to inflation during the month. This also forced the US Energy Information Administration (EIA) to lower its gasoline demand outlook. In its latest short term energy outlook, the EIA lowered gasoline demand forecast for July 2022 to 9.07 mb/d, reflecting the impact of higher fuel prices on driving habits,” the report pointed out.

“The lockdowns affected imports of crude oil in China that reached a four-year low in June with high crude inventories and low refinery run rates,” the report said.

On the supply side, the report cited OPEC's recent monthly report that showed a monthly increase of 234 tb/d in June to average at 28.7 mb/d, which came mainly as a result of higher production in Saudi Arabia that was partially offset by a steep fall in production in Libya.

The International Energy Agency, the EIA, and the Organisation of Petroleum Exporting Countries have forecast global oil demand to edge up in 2023 by at least two million b/d, to approach the 2019 level for first time since the outbreak of the pandemic.

This expectation comes despite growing fears of soaring inflation and economic growth deacceleration.