Oil prices experienced a modest recovery on Wednesday, edging higher after several consecutive days of losses driven by concerns over weakening Chinese demand and diminishing fears that the conflict in the Middle East could escalate to disrupt supply chains. Brent crude futures saw a rise of 47 cents, or 0.6%, reaching $77.67 a barrel, while U.S. West Texas Intermediate (WTI) crude gained 48 cents, or 0.7%, to settle at $73.65 per barrel.
These gains follow a period of significant decline, with Brent crude dropping 6.2% from its peak above $82 just last week and WTI falling 7.5% over the same period. The downturn was largely attributed to ongoing economic challenges in China, the world's largest crude importer, coupled with a lessening of concerns over potential supply disruptions in the Middle East.
Traders are now closely watching U.S. stockpile data, which is expected to provide further insight into the market's direction. Market sources citing American Petroleum Institute figures indicated a rise in U.S. crude oil inventories last week, although gasoline and distillate stocks were reported to have fallen. The official U.S. government inventory estimates were set to be released later on Wednesday.
The situation in the Middle East continues to influence market sentiment. U.S. Secretary of State Antony Blinken concluded a trip to the region aimed at brokering a ceasefire between Israel and Hamas. Despite leaving without a concrete agreement, Blinken highlighted the possibility of a U.S.-proposed "bridging" deal that could help narrow the gaps between the two sides in the ongoing conflict.
The potential for a ceasefire has added a layer of complexity to the oil market, with ING commodities strategists noting, "Hopes of a ceasefire between Israel and Hamas have weighed on oil, along with lingering demand concerns." These concerns are not limited to China alone, as global refinery margins have been under pressure, suggesting a broader weakening in demand.
China's economic struggles have been a significant factor in the recent downturn in oil prices. The country's weak processing margins and low fuel demand have led to reduced operations at both state-run and independent refineries. Additionally, customs data released this week showed a 7.4% year-on-year decline in crude oil imports from Russia in July, marking a third consecutive month of reduced fuel oil imports.
Crude oil prices have surrendered most of the gains made earlier this year, with China's economic slowdown overshadowing supply cutbacks implemented by OPEC+ countries. The market's attention is also turning to the U.S. economy, where lower inflation rates could prompt the Federal Reserve to ease interest rates, potentially boosting broader energy demand. Fed Chair Jerome Powell is expected to speak later this week at the central bank's symposium in Jackson Hole, Wyoming, an event that investors will be closely monitoring for clues on future economic policy.
