Oil Prices Drop 1.5% Amid Concerns Over Chinese Demand and Middle East Tensions.
Oil futures fell approximately 1.5% on Friday, ending the week on a lower note due to declining demand from China and optimism surrounding a potential ceasefire in Gaza, which could ease Middle East tensions and alleviate supply concerns.
Brent crude settled down $1.24, or 1.5%, at $81.13 a barrel, while West Texas Intermediate (WTI) crude dropped $1.12, or 1.4%, to $77.16 a barrel. Over the week, Brent crude fell more than 1%, and WTI saw a decline of over 3%.
“Yesterday’s better-than-expected U.S. GDP growth figures initially supported the crude market,” said George Khoury, global head of education and research at CFI. “However, these gains were overshadowed by concerns about declining Chinese oil demand.”
Recent data revealed that China’s total fuel oil imports dropped 11% in the first half of 2024, raising concerns about the broader demand outlook in China. “The Chinese demand situation is going down the tubes here, and crude oil prices are going down with it,” commented Bob Yawger, director of energy futures at Mizuho in New York. Yawger also noted that China’s economy is threatening to enter a deflationary cycle, where prices fall due to decreased demand.
“That is about the worst possible scenario for a country that is the largest importer of crude oil on the planet,” he added.
In the United States, demand is expected to ease as refiners prepare to reduce production with the end of the summer driving season approaching in early September. Valero Energy, the nation’s second-largest refiner, announced on Thursday that its 14 refineries would operate at 92% of combined capacity in the third quarter, down from 94% in the second quarter.
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Meanwhile, hopes for a ceasefire in Gaza have been gaining momentum. Negotiations for a ceasefire have been ongoing for months, but U.S. officials believe the parties are closer than ever to agreeing on a six-week ceasefire in exchange for the release of female, sick, elderly, and wounded hostages by Hamas.
Baker Hughes reported an increase in the U.S. oil drilling rig count, an early indicator of future output, with five additional rigs this week, bringing the total to 482. The number of rigs also rose by three in July, marking the first monthly increase since March.
