Oil Futures Decline Amid Chinese Demand Concerns

By Erwin Seba
HOUSTON (Reuters) – Oil futures fell about 1.5% on Friday, finishing the week lower due to declining Chinese demand and hopes of a Gaza ceasefire that could relieve Middle East tensions and supply issues.

Brent crude settled down $1.24, or 1.5%, at $81.13 a barrel. West Texas Intermediate (WTI) crude ended $1.12, or 1.4%, lower at $77.16 a barrel.

For the week, Brent dropped over 1% while WTI fell over 3%.

“Yesterday’s better-than-expected U.S. GDP growth figures initially supported the crude market,” said George Khoury, global head of education and research at CFI. “However, these gains were overshadowed by concerns about declining Chinese oil demand.”

Data released last week showed that China’s total fuel oil imports dropped 11% in the first half of 2024, raising concerns about the broader demand outlook in China.

“The Chinese demand situation is going down the tubes, and crude oil prices are dropping with it,” said Bob Yawger, director of energy futures at Mizuho in New York.

Yawger noted that China’s economy is threatening to enter a deflationary cycle, where prices could fall due to decreased demand. “And that is about the worst possible scenario for a country that is the largest importer of crude oil on the planet,” he added.

In the U.S., demand from the largest oil consumer is also set to ease as refiners prepare to cut back production with the end of the summer driving season approaching in early September. Valero Energy, the nation’s second-largest refiner, announced that its 14 refineries would operate at 92% of combined capacity in Q3, down from 94% in Q2.

Meanwhile, hopes for a ceasefire in Gaza are mounting. Negotiations for a ceasefire, the subject of discussions for months, appear to be closer than ever, with U.S. officials expecting a six-week ceasefire in exchange for the release of specific hostages by Hamas.

Baker Hughes’ count of U.S. oil drilling rigs, a key indicator of future output, increased by five to 482 this week, marking a rise of three in July and the first increase since March.