Crude oil futures opened lower on Monday, weighed down by concerns over demand growth despite rising tensions in the Middle East. Brent crude futures on the Intercontinental Exchange were trading at $80.77 a barrel on September 24, compared to Friday’s settlement of $81.13 a barrel. Meanwhile, West Texas Intermediate crude on the New York Mercantile Exchange was trading at $76.84 a barrel, compared to Friday’s settlement of $77.16 a barrel.
Markets saw some early support on Monday as tensions in the Middle East escalated. However, the main focus remained on concerns over demand growth, especially after disappointing GDP figures from China and the lack of a clear timetable for a US interest rate cut.
Weekly Commitment of Traders data showed a continued downward correction in the crude oil and fuel derivatives market, with investors cutting long positions and increasing short positions as they anticipate further price declines. “Speculators have become increasingly negative on the oil market due to concerns about weak Chinese demand,” commented Warren Patterson, head of commodity research at ING.
In the week to July 23, money managers cut their long Brent positions by more than 29 million barrels to 263.57 million barrels, while WTI’s net longs fell to a one-month low of 225 million barrels, down 23.46 million barrels. Last week, Brent lost 1.8% while WTI fell 3.7% on weak Chinese demand and rising hopes for a ceasefire in Gaza.
On the domestic market, oil majors Santos (1.8%), Ampol (1.6%), Woodside (1.3%) and Caron (0.1%) saw trading rise, while Beach Energy fell 0.7%. The broader energy sector rose 1.07% with the ASX 200 up 0.83%.
Oil prices trade near six-week lows as global demand weighs
Oil prices traded near six-week lows, weighed down by upbeat Chinese economic data and renewed tensions in the Middle East. Brent crude futures were little changed at below $81 a barrel, after falling for a third straight week. Data showed that Chinese industrial sector profits grew at a faster pace year-on-year in June than the previous month, reflecting resilience in the manufacturing sector.
Meanwhile, tensions have been rising in the Middle East. Despite signs of improvement in consumption from China and potential supply concerns from the Middle East, sentiment in the oil market remains subdued. China earlier this month reported its weakest economic growth in five quarters, while oil import volumes have been hampered by slower refinery returns from maintenance.
“Concerns about the Chinese economy are weighing heavily on energy commodity prices,” said one technical analyst. Members of the Organization of the Petroleum Exporting Countries and its allies are scheduled to meet online on Thursday, but are unlikely to make recommendations on their initial plans to restore output in the fourth quarter. The market appears divided on whether the cartel will follow through on its planned output increase. Although crude prices have risen slightly this year on supply discipline from OPEC+ and expectations that the Federal Reserve is close to cutting borrowing costs, anticipation is growing around the US central bank’s interest rate decision expected on Wednesday. Meanwhile, US Secretary of State Antony Blinken expressed “serious concerns” about the outcome of Venezuela’s elections, after Nicolas Maduro was re-elected as president of the OPEC member country for a sixth term.
Oil prices hit by weak Chinese demand, geopolitical tensions
Early Monday, Brent crude futures fell 33 cents, or 0.41%, to $80.80 a barrel. U.S. West Texas Intermediate (WTI) crude futures were down 29 cents, or 0.38%, at $76.87.
Brent and WTI have fallen 1.8% and 3.7%, respectively, over the past week, due to weak demand from China. “Despite rising geopolitical tensions in the Middle East, the lack of major supply disruptions is limiting any positive price reaction,” one analyst said.
“Concerns over oil demand, driven by weak Chinese economic data, are an additional factor weighing on oil prices at the moment,” the analyst added. The latest data showed an 11% decline in China’s total fuel oil imports in the first half of 2024, raising concerns about the demand outlook in the world’s largest crude oil importer.
Also, prices fell last week on news that Nigeria’s Dangote Oil Refinery had resold shipments of US and Nigerian crude after technical problems at the plant. Meanwhile, markets are monitoring the oil situation in Venezuela after the electoral body declared President Nicolas Maduro a winner for a third term with 51% of the vote, despite opinion polls showing the opposition ahead. The United States had previously announced that it would review its sanctions policy towards Venezuela based on developments in the OPEC member’s elections.
Despite these moves, concerns about the outlook for oil demand remain. Data showed that China, the world’s largest importer of crude oil, recorded an 11% decline in total fuel oil imports in the first half of 2024. Meanwhile, the United States increased the number of oil and natural gas rigs by 11%, indicating an increase in future production.
