3 reasons for the fall in oil prices

More recently, the IEA said that growth in demand for crude oil slowed in July and is expected to grow at a slower pace for the remainder of 2021 due to a sharp increase in COVID-19 infections caused by the highly-tolerant Delta strain. Additional negativity came from data from China, a major oil consumer, as the country's crude oil refining fell last month to its lowest daily level since May 2020.

Does it mean that the pressure on the market will increase, but will it continue to decrease? AMarkets experts answered the question of Fortrader magazine.

- The oil market is more likely to continue its downward trend and test multi-month lows. Among the main factors of price decrease is the rapid growth of cases of infection with delta strain of coronavirus all over the world. Investors seriously fear that the worsening epidemiological situation will lead to a new wave of restrictions in many regions of the world, which will immediately hit the demand for fuel.

The biggest concern at the moment is the economic situation in China, where a new outbreak of infection as well as extreme weather conditions have caused a stronger-than-expected slowdown in the Chinese economy, as evidenced by Monday's data on industrial production, retail sales and investment.

Since China is the key consumer of hydrocarbons in the world, market participants seriously assume that further deterioration of the epidemiological situation in the Celestial Empire may result in a decline in global oil consumption by more than 3%. If these fears materialize, the oil market will face a period of serious sell-offs.

Additional pressure on oil may be exerted by the Fed's plans to roll back QE, which now stands at $120bn per month. In particular, FedReserve considers a scenario of a full stop of quantitative easing by the middle of 2022, thus the decision on the beginning of an exit from QE can be accepted already by results of September meeting of the regulator. Let's note that the refusal of the American economy from stimulus can provoke sale of all risky assets, and oil won't become an exception.