Oil Prices Fall over Growing Demand Concerns
Oil price hold back early on Monday in the global commodity market following growing demand concerns following China’s weaker than expected economic growth data and strong US dollar.
ICE Brent trade around $86 per barrel, down from $87 last week while the market also witness price decline in US benchmark WTI.
After four weeks of gains, oil prices settled lower last week with ICE Brent down more than 1.7% over the week. While fundamentals are still supportive, there are growing demand concerns, largely emanating from China, according to ING.
This reflected lower domestic oil demand, while June crude oil imports fell year on year, once again, ING commodities strategists Warren Patterson and Ewa Manthey said.
As China is expected to make up the majority of oil demand growth this year, analysts said it is not surprising signs of weakness in Chinese demand are a concern.
China’s economy grew 4.7% from a year earlier in the second quarter of the year, missing market expectations.
Beijing’s gross domestic product report showed that growth slowed from the 5.3% year-over-year expansion recorded in the first three months of the year
US dollar strength following the attempted assassination of former president Trump over the weekend is putting pressure on oil prices in early morning trading today.
Oil prices were mixed during the week ending July 12 due to cease-fire talks between Israel and Hamas, expectations that Hurricane Beryl will not damage oil infrastructure in the Gulf of Mexico.
The International benchmark Brent crude traded at $87.33 per barrel on Friday, rising by around 1.06% relative to the closing price of $86.41 a barrel on Friday last week.
West Texas Intermediate (WTI), the American benchmark, traded at $83.79 a barrel at the same time on Friday, an increase of about 2.75% from last Friday’s session, which closed at $81.54 per barrel.
The prospects of a cease-fire agreement between Israel and Hamas put downward pressure on oil prices by easing concerns about an escalation of the conflict and possible disruptions to the global oil supply.
US President Joe Biden said on Thursday that he is determined to broker an end to Israel’s ongoing war on the besieged Gaza Strip.
Addressing reporters at the end of NATO’s three-day leader-level summit, Biden said both Israel and Hamas have agreed to what he called a deal ‘framework’ with negotiators currently working to finalize the details.
‘These are difficult, complex issues. There’s still gaps to close. We’re making progress. The trend is positive,’ he said at the Walter E. Washington Convention Center. ‘And I’m determined to get this deal done and bring an end to this war, which should end now,’ Biden added.
A four-party meeting was held Wednesday in Doha with CIA Director Bill Burns, Qatari Prime Minister Sheikh Mohammed bin Abdulrahman Al Thani, Egyptian intelligence chief Abbas Kamel, and David Barnea, the head of Israel’s Mossad, to reach an agreement between Israel and Hamas that will guarantee prisoner exchanges and a cease-fire on both sides.
For months, efforts by the US, Qatar, and Egypt to mediate an agreement for a hostage exchange and cease-fire have been hampered by Israeli Prime Minister Benjamin Netanyahu’s rejection of Hamas’ demand to halt hostilities.
Meanwhile, statements that Hurricane Beryl, which reached the Texas coast of the US with a ‘category 1’ intensity, would not leave permanent damage to the oil infrastructure in the Gulf of Mexico, relieved oil prices.
The largest ports in Texas closed operations due to the potential impact of the Hurricane by fueling supply fears of the market players as port closures could bring a temporary halt to oil shipments.
However, oil and gas companies in the region resumed their operations on Tuesday and that eased supply concerns putting downward pressure on prices.
On the other hand, the fall in US commercial crude oil reserves limited downward price movements by reflecting market perceptions of strengthening domestic demand.
According to data released by the EIA late Wednesday, US commercial crude oil stocks decreased by around 3.4 million barrels to 445.1 million barrels, compared to the market’s estimate of a rise of around 700,000 barrels.
Over the same period, gasoline inventories fell by approximately 2 million barrels to 229.7 million barrels. Official statistics from the EIA portrayed a positive demand outlook in the US, the world’s largest oil consumer, and supported upward price movements.
OPEC’s latest monthly oil market report also showed an 80,000 barrels per day (bpd) drop in the organization’s crude oil production in June, which brought total output down to 26.57 million bpd.
The organization also reported that the total daily crude oil production of the OPEC+ group, which consists of OPEC and some non-OPEC producing countries, fell by 125,000 barrels to 40.80 million bpd.
The data signaling low production levels fueled market players’ supply concerns and lent support to crude oil prices. Furthermore, ongoing uncertainty over when the Fed will lower interest rates continues to influence prices by raising demand concerns.
Consumer price index (CPI) in the country fell by 0.1% on a monthly basis in June, while it increased by 3% on an annual basis, remaining below market expectations, according to the data released on Thursday.
On a monthly basis, the CPI fell for the first time since May 2020, while annual inflation fell to the lowest level in the last year. In the same period, gasoline prices also fell by 3.8% month-on-month and 2.5% year-on-year.
Analysts stated that the data, which indicates that the disinflation trend continues in the US, the world’s largest oil-consuming country, increased expectations that the Fed will start rate cuts soon. Low interest rates support a lower US dollar, making oil cheaper for holders of other currencies. Nigeria US Dollar Bond Yield Dips as FPIs Raise Bets
