Oil prices saw a decrease on Thursday, as concerns over tepid demand from China and the prospect of a ceasefire deal in the Middle East overshadowed gains from the previous session, which had been driven by recent reductions in U.S. inventories.
Brent crude futures for September dropped by 59 cents, or 0.7%, to $81.12 per barrel by 0630 GMT. Meanwhile, U.S. West Texas Intermediate crude for September fell 61 cents, or 0.8%, to $76.98 per barrel.
On Wednesday, both benchmarks had recorded gains, reversing a trend of consecutive declines. This was fueled by a report from the Energy Information Administration (EIA) indicating a reduction of 3.7 million barrels in U.S. crude inventories last week, surpassing analysts’ expectations of a 1.6-million-barrel draw.
Additionally, U.S. gasoline stocks decreased by 5.6 million barrels, a significant drop compared to the expected 400,000-barrel decline. Distillate inventories also fell by 2.8 million barrels, contrary to the anticipated 250,000-barrel increase.
Despite these inventory draws, investors remained cautious due to concerns about declining demand in China and the ongoing discussions for a ceasefire between Israel and Hamas. Hiroyuki Kikukawa, President of NS Trading, noted, “Despite draws in U.S. crude and gasoline stocks, investors remained wary about weakening demand in China and expectations of advancing ceasefire talks between Israel and Hamas added to pressure.”
China’s oil imports and refinery activities have been lower this year compared to 2023, reflecting weakened fuel demand amid sluggish economic growth, as reported by government data.
The decline in U.S. stock markets also contributed to reduced risk appetite among traders, with all three major Wall Street indexes closing lower on Wednesday.
In the Middle East, efforts to negotiate a ceasefire to end the Gaza Strip conflict between Israel and Hamas have gained traction. This initiative, outlined by U.S. President Joe Biden in May and mediated by Egypt and Qatar, has progressed over the past month.
Israeli Prime Minister Benjamin Netanyahu recently presented a broad outline for a “deradicalized” post-war Gaza during a speech to the U.S. Congress, highlighting a potential future alliance between Israel and America’s Arab allies.
Commodity analyst Satoru Yoshida of Rakuten Securities suggested, “If Middle East ceasefire talks progress, U.S. equities continue to slide, and China’s economy remains sluggish, oil prices could fall to early June levels.”
Furthermore, Phillip Nova analyst Priyanka Sachdeva noted the lack of clarity regarding U.S. interest rate cuts and expressed skepticism about robust demand given the slow pace of China’s economic recovery. The U.S. Federal Reserve is projected to implement two rate cuts this year, in September and December, according to a Reuters poll of economists. This cautious approach reflects resilient consumer demand in the U.S., despite easing inflation.
Lower interest rates are anticipated to stimulate economic growth, potentially leading to increased oil consumption.
In Canada, wildfires continue to ravage western provinces, including British Columbia and Alberta, affecting the oil sands hub in Fort McMurray.
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