Oil futures prices settled slightly lower on Friday as investors weighed weaker U.S. consumer sentiment against rising hopes for a Federal Reserve rate cut in September.
Market Reaction and Economic Indicators
Brent crude futures dropped 37 cents to $85.03 a barrel, while U.S. West Texas Intermediate (WTI) crude futures fell 41 cents, or 0.5%, to close at $82.21 a barrel. For the week, Brent futures saw a decline of more than 1.7% after four consecutive weeks of gains, while WTI futures posted a 1.1% weekly decline.
A monthly survey by the University of Michigan revealed that U.S. consumer sentiment fell to an eight-month low in July, although inflation expectations improved for the upcoming year and beyond. Additionally, the U.S. Labor Department reported that the producer price index (PPI) rose by 0.2% in June, slightly above expectations, driven by higher service costs.
Despite these indicators, investors remain optimistic about a potential Federal Reserve rate cut in September. Phil Flynn, an analyst at Price Futures Group, noted, “The market isn’t afraid of the Fed at this point,” highlighting the expectation that lower rates could boost economic growth and fuel consumption.
Fuel Demand and Refinery Activity
U.S. gasoline demand has provided some support for oil prices, with government data showing consumption at 9.4 million barrels per day (bpd) in the week ending July 5, the highest since 2019 for the Independence Day week. Jet fuel demand on a four-week average basis reached its strongest level since January 2020.
This robust fuel demand has prompted U.S. refiners to ramp up activity and draw from crude oil stockpiles. Data indicated that U.S. Gulf Coast refiners’ net input of crude rose last week to more than 9.4 million bpd, a level not seen since January 2019.
However, signs of weaker demand from China, the world’s largest oil importer, could counterbalance the positive outlook from the United States. Tamas Varga of oil broker PVM pointed out, “The recent downside correction is evidently over, although the speed of further ascent might be hindered by falling Chinese crude oil imports, which plummeted 11% in June from the previous year.”
The U.S. active oil rig count, an early indicator of future output, fell by one to 478 this week, the lowest since December 2021, according to energy services firm Baker Hughes. Meanwhile, money managers increased their net long U.S. crude futures and options positions in the week to July 9, the U.S. Commodity Futures Trading Commission (CFTC) reported.
Looking Ahead
Despite the current market challenges, some analysts remain optimistic about the future. Yeap Jun Rong, a market strategist at IG, suggested that cooling U.S. inflation numbers might support the case for the Fed to begin policy easing earlier, which could bolster fuel consumption.
While the market navigates these mixed signals, the ongoing economic data and geopolitical developments will continue to play a crucial role in shaping oil prices. Investors will closely monitor future indicators and Fed announcements to gauge the potential impacts on the oil market.
Source: Reuters
