Oil Prices Steady After Four-Day Slump
Oil prices held their ground on Thursday, stabilizing after a four-day decline driven by concerns over the global demand outlook. This steadiness comes despite the worries, as a decline in US fuel inventories provided some support to the market.
Brent crude futures saw a modest gain, adding 31 cents or 0.41%, to settle at $76.36 a barrel. Meanwhile, the US West Texas Intermediate (WTI) crude futures experienced a slight increase of 18 cents, or 0.25%, reaching $71.80, as of 1031 GMT. This week, Brent has seen a decrease of 4.2%, while WTI crude has declined by 6%.
A significant drop in prices occurred on Wednesday, following revisions to US jobs data that compounded the concerns surrounding crude demand. This was further exacerbated by last week’s weak economic indicators from China. Both the United States, as the world’s largest oil consumer, and China, the top oil importer, play critical roles in the global oil demand scenario.
A report indicating a downward revision in the number of jobs added in the US this year intensified worries about the potential for a weakening economy. “The potential weakness in the US economy coupled with a lacklustre recovery in China suggests oil demand growth is to be towards the lower end of expectations,” remarked Panmure Liberum analyst Ashley Kelty.
However, providing some support to oil prices, a US government report disclosed a reduction in US crude, gasoline, and distillate inventories for the week ending August 16, while refinery operations saw an uptick. Interestingly, the reported draw in US stocks last week was significantly larger than anticipated. “The EIA reported a draw of 4.6 million barrels last week – well above the forecast 2.6 mmbbl draw,” Kelty added, highlighting this unexpected decline as a limiting factor for further losses.
Market participants are also closely monitoring the Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, for their upcoming decisions regarding possible increases in supply. With voluntary output cuts currently in place, there is speculation that these may be lifted come October, potentially adding more supply to the market.
The lingering uncertainty over how OPEC+ might adjust its production in the fourth quarter, should the cuts be lifted, further weighs on the prices. However, adjustments to the production strategy, either pausing or reversing the cuts, could be made if deemed necessary. “The downward pressure on prices makes it increasingly likely that OPEC+ will have to scrap their plans for gradually increasing supply from October. Failing to do so, will likely put further pressure on prices,” noted analysts at ING in a client note.
Meanwhile, concerns surrounding the Israel-Gaza conflict have seen some reduction over the past week as the US, Israel, and Hamas work towards brokering a ceasefire deal. Despite recent US diplomatic efforts concluding without an agreement, the possibility of de-escalating the conflict has led to a reassessment of the geopolitical risk premium previously factored into oil prices. “Upside catalysts for oil may seem limited for now, with rising odds of a ceasefire in the Middle East, which saw market participants pricing out some of the geopolitical risks,” stated IG market strategist Yeap Jun Rong.
In conclusion, the oil market is currently navigating through a complex landscape marked by economic uncertainties and geopolitical tensions. While the recent stabilization in oil prices offers some respite, market watchers remain vigilant, closely observing developments that could impact global oil demand and supply dynamics in the coming months.
