Oil prices have seen a significant drop, with Brent crude and West Texas Intermediate (WTI) both falling over 1% on Friday. This decline is attributed to growing concerns about Chinese demand and optimism surrounding a potential ceasefire in Gaza, which could alleviate some Middle East tensions and supply worries. By 12:07 p.m. CDT (1707 GMT), Brent crude had decreased by $1.05, or 1.3%, settling at $81.32 per barrel. Similarly, WTI saw a decline of 95 cents, or 1.21%, bringing its price to $77.33 per barrel. Over the week, Brent has fallen by over 1%, while WTI has dropped more than 3%.
"Yesterday's better-than-expected U.S. GDP growth figures initially supported the crude market," noted George Khoury, global head of education and research at CFI. "However, these gains were overshadowed by concerns about declining Chinese oil demand." Recent data indicates a troubling trend, with China's total fuel oil imports dropping 11% in the first half of 2024, raising alarm about the broader demand outlook in China. Bob Yawger, director of energy futures at Mizuho in New York, highlighted the severity of the situation: "The Chinese demand situation is going down the tubes here and crude oil prices are going down with it." Yawger added that China's economy might be on the verge of a deflationary cycle, a dire scenario for the world's largest crude oil importer.
In the United States, demand is also anticipated 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 that its 14 refineries would operate at 92% of combined capacity in the third quarter, down from 94% in the second quarter. On the geopolitical front, hopes for a ceasefire in Gaza have gained traction. Negotiations have been ongoing for months, but U.S. officials now believe the parties are closer than ever to agreeing on a six-week ceasefire in exchange for the release of certain hostages by Hamas. This potential resolution has tempered some of the immediate supply concerns in the Middle East.
However, the decline in oil prices has been somewhat offset by other factors. Canadian wildfires pose a threat to production, and a significant draw in U.S. crude stockpiles, coupled with continued hopes for a September cut to U.S. interest rates following strong economic data, have provided some support to prices, according to PVM oil analyst Tamas Varga.
U.S. crude oil is poised for its third consecutive weekly decline, largely driven by worries over Chinese demand. West Texas Intermediate (WTI) has dropped more than 2% on Friday and is down 4.2% for the week, while Brent crude is 2.3% lower. The U.S. economy grew at a robust 2.8% rate in the second quarter, exceeding expectations. However, China's oil imports fell by 10.7% year-over-year in June, with refined product imports plummeting 32% during the same period, according to customs data. China remains the world's largest crude importer.
Current energy prices reflect these dynamics: West Texas Intermediate (WTI) is at $76.51 per barrel, down $1.77, or 2.26%, year-to-date, U.S. oil has gained 6.8%. Brent is at $80.57 per barrel, down $1.80, or 2.19%, year-to-date, the global benchmark is up 4.6%. RBOB Gasoline is at $2.44 per gallon, down 2 cents, about 1%, year-to-date, gasoline is up 16.3%. Natural Gas is at $2.02 per thousand cubic feet, down 1 cent, or 0.69%, year-to-date, gas is down 19.4%.
Surprise rate cuts by the People's Bank of China have further fueled concerns about the strength of China's economy. The central bank's unexpected interest rate reduction on Monday, followed by a cut to its medium-term lending rate on Thursday, has not alleviated fears about the country's economic health. Bob Yawger of Mizuho Securities highlighted the market's anxiety: "The semi-panicky moves are increasing concerns that Chinese energy demand may be further into the future than expected."
