Oil Prices Hit Six-Week Low

By Scott DiSavino

NEW YORK (Reuters) – Oil prices fell about 2% to a six-week low on Tuesday due to rising expectations of a ceasefire in Gaza and concerns about demand in China.

Brent futures dropped $1.39 (1.7%) to settle at $81.01 a barrel, while U.S. West Texas Intermediate crude (WTI) closed $1.44 (1.8%) lower at $76.96. This marked the lowest closes for both Brent and WTI since June 7, pushing them into oversold territory for the first time since early June.

U.S. diesel futures settled at their lowest since June 7, and gasoline futures were at their lowest since June 14.

In the Middle East, efforts to reach a ceasefire between Israel and Hamas, mediated by Egypt and Qatar under a plan by U.S. President Joe Biden, have gained momentum. Israeli Prime Minister Netanyahu indicated that a deal for hostages’ release could be near, despite ongoing fighting.

Biden is expected to meet Netanyahu on Thursday.

The ongoing war in Gaza has supported oil futures as investors consider the risk of disruptions to global crude supply from key Middle Eastern regions.

UN Special Envoy Hans Grundberg warned of the dangers from new Houthi attacks and retaliatory Israeli airstrikes.

Palestinian factions, including Hamas and Fatah, have agreed to form a national unity government during negotiations in China.

Claudio Galimberti from Rystad noted that ceasefire talks and an uncertain economic outlook in China are pressuring oil prices this week. Additionally, the U.S. dollar has strengthened against other currencies, making oil more expensive abroad and potentially reducing demand.

Interest Rate Cuts

However, increasing expectations for interest rate cuts in September may provide a support floor for oil prices, as lower borrowing costs can boost demand. European Central Bank Vice-President Luis de Guindos hinted at potential rate cuts, while U.S. investors anticipate cuts from the Federal Reserve, which had raised rates aggressively in 2022 and 2023 to control inflation.

China surprised markets by making broad cuts to short and long-term interest rates, signaling a focus on stimulating growth in the second-largest economy.

U.S. Crude Stockpiles

The market awaits direction from upcoming U.S. oil storage data from the American Petroleum Institute (API) and the U.S. Energy Information Administration (EIA). Analysts estimate that U.S. energy firms pulled about 1.6 million barrels of crude out of storage during the week ending July 19. If accurate, it would mark the first four-week consecutive decline in U.S. crude stocks since September 2023, contrasting with a decline of 600,000 barrels in the same week last year, and aligns with an average decrease of 1.8 million barrels over the past five years.