Oil Prices Settle Lower

Oil prices settled lower on Tuesday, reaching their lowest levels since mid-June due to increasing expectations of a Gaza ceasefire and concerns over demand growth.

At 14:30 ET (18:30 GMT), Brent oil futures declined by 1.3% to $81.20 a barrel, and West Texas Intermediate crude futures fell by 1.5% to $77.22 a barrel.

Gaza Ceasefire in Focus

Oil markets are closely monitoring developments in the Israel-Hamas conflict, as Israel indicated that ceasefire talks will resume this week.

Efforts toward a ceasefire between Israel and Hamas have gained momentum over the past month. U.S. President Joe Biden is anticipated to meet with Israeli Prime Minister Benjamin Netanyahu on Thursday to discuss the ceasefire and other issues, including Iran.

The conflict in Gaza has temporarily supported oil prices as investors consider the risks of potential disruptions to global crude supply.

Rystad Energy noted, “Ceasefire negotiations in the Middle East and an uncertain macroeconomic outlook in China are exerting downward pressure on oil prices this week.”

Demand Worries Remain

Markets still harbor doubts about crude demand due to indications of cooling global economic growth under pressure from high interest rates.

Concerns about the top oil importer, China, persist despite an unexpected reduction in benchmark interest rates aimed at stimulating growth. Analysts argue that the rate cut is insufficient to boost confidence.

Additionally, the recent Third Plenary of the Chinese Communist Party provided little insight into expected stimulus measures from Beijing, particularly as the Chinese economy showed slower growth than anticipated in the second quarter.

Cooling growth poses challenges for the oil demand outlook, with some analysts warning of a potential supply surplus by 2025. Morgan Stanley indicated this week that the oil market could shift to a surplus by 2025, expecting prices to fall into the mid-to-high $70s range.

However, Morgan Stanley forecasts that oil prices may reach $86 per barrel by the end of the third quarter, indicating possible near-term upside from current levels.

U.S. Inventories Due

The American Petroleum Institute (API) is expected to release its estimates for last week’s oil inventories later today, with official U.S. government data scheduled for release on Wednesday.

U.S. oil inventories have been consistently declining over the past few weeks, as the summer driving season continues to stimulate demand in the world’s largest oil consumer.

*(Peter Nurse, Ambar Warrick contributed to this article.)