Oil Prices Decline Amid Demand Concerns
Oil prices declined significantly, resulting in a weekly loss, influenced by a strong dollar and ongoing demand worries from China.
At 14:30 ET (18:30 GMT), West Texas Intermediate crude futures fell $2.48 to settle at $80.34 a barrel, while Brent oil futures dropped 2.7% to $82.80 a barrel.
China Demand Concerns and Dollar Strength
Concerns about sluggish demand from the world’s largest oil importer, China, have taken center stage following weaker-than-expected growth figures for the second quarter. This concern is compounded by a recent decline in China’s oil imports in June.
Economic data from China has been weak, and the Third Plenary session of the Chinese Communist Party, which began earlier this week, provided little indication of new stimulus measures. Additionally, reports of potential stricter U.S. trade restrictions on China’s technology sector added to the negative sentiment towards China, particularly with the speculation regarding a return of Donald Trump to the presidency, who is known for protectionist policies.
Trump has also indicated an interest in increasing U.S. oil production, which could lead to higher supply in the future. Meanwhile, a stronger dollar has also weighed on oil prices as investors react to the Federal Reserve’s comments before the blackout period beginning Saturday.
Support from Tighter Markets and Rate Cut Hopes
On the positive side, expectations for tighter oil markets in the near future provided some support for crude prices. U.S. inventories have decreased for three consecutive weeks, correlating with an increase in travel and fuel demand typical of summer months.
Expectations of potential interest rate cuts by the Federal Reserve further buoyed crude prices, suggesting improved conditions for economic growth and oil demand. In addition, global geopolitical tensions, particularly between Hamas and Israel and Houthi actions in the Red Sea, kept certain levels of risk premium in the oil markets.
Analysts at ING noted that the oil market has become relatively rangebound. Growing concerns about Chinese demand limit price increases, while the expectation of a tight market in the upcoming third quarter provides a price floor.
Regarding supply, Baker Hughes reported a decrease of one oil rig, bringing the total to 477 from the previous week.
(Contributors: Peter Nurse, Ambar Warrick)
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