US oil prices fell for the third straight weekly decline on Friday, as concerns over Chinese demand outweighed US economic strength. US oil fell 2.7% this week, while Brent crude fell 0.84%.
Despite strong US economic growth, which reached 2.8% in the second quarter, Chinese customs data showed a significant drop in oil imports, which fell 10.7% year-on-year in June, while refined product imports fell 32% during the same period. China is the world’s largest importer of crude oil.
Here are the current energy prices (at the time of writing):
– West Texas Intermediate: September contract at $77.92 per barrel, down $0.36, or 0.46%. Since the beginning of the year, it has risen 8.8%.
– Brent crude: September contract at $81.93 per barrel, down $0.44, or 0.53%. The global benchmark has gained 6.4% since the beginning of the year.
– Gasoline RBOB: August contract at $2.46 per gallon, unchanged. Gasoline is up 17.2% since the beginning of the year.
– Natural gas: August contract at $2.02 per thousand cubic feet, down $0.01, or 0.73%. Natural gas has fallen 19.4% since the beginning of the year.
Sudden interest rate cuts in China have raised concerns about Beijing’s ability to stimulate the world’s second-largest economy. The People’s Bank of China cut interest rates in a surprise move on Monday, followed by a cut in the lending rate on its medium-term facility on Thursday.
“The sudden moves raise concerns that Chinese energy demand may be lagging behind expectations,” said Bob Yawger, executive director of energy futures at Mizuho Securities.
Despite these fluctuations, the market witnessed an important development: traders showed respect for the technical support levels, which allowed light crude oil to recover most of its weekly losses.
Oil extends its weekly losses amid concerns about Chinese demand
Crude oil prices continue to record weekly losses for the third consecutive time, amid pressures resulting from expectations of a decline in Chinese demand. However, oil saw some gains at the beginning of the week, supported by large inventory draws as reported by the American Petroleum Institute and the Energy Information Administration. Oil prices also received a boost from the US Department of Commerce, which confirmed that the gross domestic product grew by 2.8% in the second quarter, indicating an increase in consumer spending and business investment.
More US economic data is expected later today, as the Federal Reserve will reveal data on personal consumption expenditures, the US central bank’s preferred inflation measure. At the same time, prices benefit from positive expectations regarding personal consumption expenditures, which enhances hopes for a possible interest rate cut in September.
Elsewhere, analysts warned this week that weak demand and slower GDP growth next year could push oil prices down by around $11 a barrel, especially if the US imposes new tariffs on imported goods. That drop could deepen to $19 a barrel if the Federal Reserve delays interest rate cuts until after 2025 due to persistently high inflation. Interestingly, some oil market watchers are expecting OPEC to ramp up supply in the second half of the year. Observers are divided on whether the cartel will ease its curbs next quarter. OPEC has already suggested it could roll back some production curbs, but has made clear that this will only happen if prices are within its target range. With prices falling, the group is unlikely to restore any supply, as that would put further pressure on prices and run counter to the original goal of the cuts.
Oil Price Volatility: US Inventory Data and Global Demand Impacts
The crude oil market has been volatile this week, with prices varying widely as traders analyze key economic data, new global events, and supply and demand impacts. The week opened cautiously, followed by a midweek rally, before prices faced fresh pressure as multiple factors developed.
US Inventory Data Surprise
The most positive news of the week was US inventory data, with the Energy Information Administration (EIA) reporting a significant drawdown in crude and fuel inventories. Crude inventories fell by 3.7 million barrels, a larger-than-expected decline. Gasoline and distillate inventories also fell significantly, reflecting strong demand for oil in the US. Such strong demand would normally drive prices higher, but the market did not react much, suggesting that other factors were influencing traders’ decisions.
Concerns over slowing growth and demand
However, Brent crude fell by about 0.3% during the week, while WTI is expected to lose about 2%, due to ongoing concerns about slowing growth and demand in China, the largest oil importer. Beijing unexpectedly cut its key lending rates this week, in an attempt to stimulate monetary policy amid growing concerns about slowing economic growth.
The downtrend in oil also partially contributed to Chinese GDP data showing weaker-than-expected growth in the second quarter. Uncertainty over the Japanese economy increased after mixed inflation data from Tokyo, raising doubts about the Bank of Japan’s ability to raise interest rates next week.
Also, speculation about the possibility of a ceasefire between Israel and Hamas or the possibility of further escalation affected traders’ decision to place a risk premium on oil pricing.
