Oil prices fell more than a dollar on Friday, with Brent crude falling below $80 a barrel after a string of negative July data from China outweighed geopolitical risks in the markets. Brent crude futures were down $1.07, or 1.32%, at $79.10, while US West Texas Intermediate crude futures were down $1.27, or 1.62%, at $75.60.
The oil market faces a major challenge in maintaining its recent gains at $80 a barrel, especially after recent weak economic indicators confirmed the downward pressure on prices at a time when geopolitical concerns appear to have receded into the background. This morning, the Brent crude futures curve has changed to a bearish bias, as the market reassesses relative availability amid disappointing Chinese crude import and refinery runs. A dip occurs when spot prices are higher than futures prices, reducing the incentive for energy companies to pay for fuel storage. In an effort to control oil prices, Chinese refineries cut their crude processing rates significantly last month due to weak fuel demand. The Organization of the Petroleum Exporting Countries (OPEC) also cut its demand forecast for this year on Monday, citing a weaker-than-expected outlook in China.
Some analysts believe that Brent crude’s moves toward a more stable range may depend on the U.S. Federal Reserve’s decision on interest rates at its September meeting. U.S. retail sales data, which beat analysts’ expectations on Thursday, also gave a positive boost to prices, while other data showed that the number of Americans filing for unemployment benefits fell last week, fueling optimism about U.S. economic growth.
Oil prices fall as concerns over China’s economy persist
Oil prices fell slightly on Friday, after heading for a second straight weekly gain. The rally was driven by positive data on the U.S. economy showing remarkable resilience, as well as lower interest rates, which boost expectations for increased demand for oil. Despite traders being cautious about escalating tensions in the Middle East, which added a risk premium to crude prices, overall gains remain limited by ongoing concerns about a slowing Chinese economy. Mixed economic data released this week did little to improve sentiment around the world’s largest oil importer.
Earlier on Friday, strong US data helped lift oil prices, as a series of positive economic indicators in the US, coupled with signs of easing inflation, pushed prices higher. Strong retail sales figures for July showed that US consumers still have good purchasing power, suggesting a positive outlook for fuel demand. In addition, slowing inflation boosted hopes that the Federal Reserve will cut interest rates in September.
A weaker dollar and lower interest rates helped support oil prices further this morning, as a weaker greenback makes oil cheaper for holders of other currencies. However, an unexpected increase in US oil inventories suggests that demand could slow as the summer travel season ends.
Concerns about China remain a major concern in oil markets, as economic activity in the world’s largest oil importer shows little sign of improving. China’s oil imports fell for a second straight month in July, and most economic indicators for the month were negative. These concerns prompted both OPEC and the International Energy Agency to cut their forecasts for oil demand growth in 2024, citing political uncertainty in China and continued weakness in its economy as key factors in their revised forecasts.
Factors Affecting Global Oil Price Forecasts
Oil price forecasts are influenced by a number of interrelated and variable factors, such as global economic, political, and climate factors, in addition to supply and demand forces. Here are some of the main factors that affect current and future oil price forecasts:
1. Geopolitical tensions:
Tensions in major oil-producing regions, such as the Middle East, can lead to supply disruptions and higher prices. This may include regional conflicts or economic sanctions imposed on certain countries.
2. Central bank monetary policies:
Monetary policy decisions, such as those made by the US Federal Reserve, directly affect oil prices. Lowering interest rates can lead to a weaker US dollar, making oil (priced in dollars) less expensive for holders of other currencies, increasing demand for it.
3. US inventories:
US oil inventory data is an important indicator of the balance of supply and demand. Increased inventories may indicate an oversupply, leading to lower prices.
4. Demand from China and India:
China and India are among the largest oil importers in the world, so any changes in economic activity in these two countries greatly affect global demand and oil prices.
5. OPEC+ decisions:
The Organization of the Petroleum Exporting Countries (OPEC) and its allies make decisions related to reducing or increasing production, which directly affects the balance of supply and demand in global markets.
Current expectations:
According to recent reports, expectations indicate that oil prices may witness some fluctuations in the near future due to uncertainty about global economic growth, especially in China. The monetary policies of major central banks will also be crucial in determining the future trends of oil prices.
These factors remain constantly changing, so keeping track of relevant economic, political and climate news can provide a clearer view of oil price expectations in the coming period.
