Oil Steadies on Signs of Weak Demand, Tight Supply
Oil prices were relatively steady on Thursday in the global commodity market on signs of a potential demand slowdown amidst tight supply. Weak economic data from top two largest crude oil consumers, the United States and China, signpost possible crude buying cutbacks.
On the other hand, unending geopolitical tensions and OPEC+ supply cut extension are impacting the crude oil supply in the global commodity market. Price movements has been driven by supply fears due to tensions in the Middle East and demand uncertainties in the world’s largest oil consumers, the US and China.
ICE Brent traded at $85.22 per barrel, up by 0.18% from the closing price of $85.07 per barrel in the previous trading session. West Texas Intermediate (WTI) traded at $80.63 per barrel at the same time, a 0.01% drop from the previous session that closed at $80.64 per barrel.
The escalating geopolitical tensions in the Middle East continue to put global energy supply routes at risk. In recent weeks, the Israeli-Lebanese border has seen significant escalation, prompting repeated calls from the US to contain the situation.
Israel’s military said Tuesday that it approved plans for an offensive in Lebanon as tensions rise with the Hezbollah group. On Wednesday, Hezbollah Secretary-General Hasan Nasrallah warned that the possibility of an incursion into the Galilee region in northern Israel remains plausible in the event of a war.
Israeli Defense Minister Yoav Gallant said late Wednesday that the situation on the northern border with Lebanon will change either through a political settlement or a wide-scale military operation. Tensions have risen along Lebanon’s border with Israel amid cross-border attacks between the Lebanese Hezbollah group and Israeli forces as Tel Aviv presses ahead with its deadly offensive on the Gaza Strip, which has killed nearly 37,400 people since last October.
However, according to Daniel Hynes, a commodity strategist at Australia and New Zealand Banking Group, crude oil gave back gains following data which signaled weak demand.
‘Demand in China also weighed on sentiment,’ Hynes said, as diesel output in the country for May fell 6.4%, while gasoline output rose only 2.9% year-on-year. The rise in the US commercial crude oil reserves also reflected market perceptions of weakening domestic demand. Data released by the American Petroleum Institute (API) late on Tuesday also showed an increase of 2.26 million barrels in US crude oil reserves.
Crude oil prices were little changed after recently released economic data signaled weak demand, ANZ Bank said in a Thursday note. Demand in China also weighed on sentiment, the bank noted.
China reported decline in industrial production recently, and Beijing refining activity also went down. China’s second quarter of 2024 gross domestic product growth may fall to around 5% after May data broadly missed expectations, China Development Bank Securities analysts say in a research note.
The local economy is still in a very mild recovery mode, while domestic demand remains weak, they say. Although some efforts by Beijing, such as large-scale equipment renewal, are helping consumption and production, additional policies will be needed to support economic growth, the analysts say. ECA, Partners Train Experts on Modelling Tools for Efficient Energy
