Oil prices stabilized on Thursday following four consecutive days of decline as concerns over global demand weighed heavily on the market. Despite these worries, a significant drawdown in U.S. crude oil inventories provided a much-needed floor for prices.
Brent crude futures rose by 31 cents, or 0.41%, to $76.36 a barrel, while U.S. West Texas Intermediate (WTI) crude futures gained 18 cents, or 0.25%, to $71.80 as of 1031 GMT. The slight uptick in prices comes after a week where Brent dropped 4.2% and WTI fell by 6%.
The week's decline was driven primarily by revisions to U.S. employment data, which revealed that the country had added fewer jobs than previously reported, intensifying fears about the health of the global economy. The U.S., the world's largest oil consumer, and China, the largest oil importer, both showed signs of economic weakness, further dampening the demand outlook for crude.
"The potential weakness in the U.S. economy coupled with a lackluster recovery in China suggests oil demand growth is likely to be at the lower end of expectations," said Ashley Kelty, an analyst at Panmure Liberum.
However, a U.S. government report showing a larger-than-expected drop in crude oil, gasoline, and distillate inventories last week offered some support to prices. The Energy Information Administration (EIA) reported a draw of 4.6 million barrels in U.S. crude stocks for the week ending August 16, significantly above the forecasted 2.6 million barrel draw.
"The larger-than-expected draw in U.S. stocks last week was a fillip which limited losses," added Kelty. "This report provided a much-needed boost to the market."
In the background, investors are closely watching the Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, as they contemplate whether to lift some of the voluntary output cuts in October. The potential increase in supply has added to the bearish sentiment in the market, though analysts note that OPEC+ could pause or reverse these cuts if necessary to stabilize prices.
"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," ING analysts noted in a client report.
Meanwhile, geopolitical concerns, particularly regarding the ongoing conflict in the Middle East, have eased in recent days. Efforts by the U.S., Israel, and Hamas to negotiate a ceasefire have reduced some of the risk premiums that were 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," said Yeap Jun Rong, a market strategist at IG, in an email.
On Wednesday, crude oil futures settled at their lowest levels since January, with the downward revision in U.S. payroll data outweighing the bullish impact of the crude draw. The front-month Nymex crude for October delivery fell by 1.7% to $71.93 per barrel, while Brent crude for October delivery closed 1.5% lower at $76.05 per barrel.
Gasoline futures also fell to their lowest settlement since May 2023, contributing to a decline in U.S. pump prices to a five-month low of $3.398 per gallon, according to AAA. This drop in gasoline prices could offer some political relief as inflation remains a critical issue for the upcoming election cycle.
