Oil futures declined by 1.5% on Friday, ending the week on a lower note as fears over declining Chinese demand and potential easing of Middle East tensions influenced market sentiment. Brent crude settled at $81.13 a barrel, down $1.24, while West Texas Intermediate (WTI) crude fell $1.12 to $77.16 a barrel. For the week, Brent dropped over 1%, and WTI fell more than 3%.
Impact of Chinese Demand
China, the world’s largest importer of crude oil, reported an 11% drop in total fuel oil imports in the first half of 2024. This decline has raised significant concerns about future demand. “The Chinese demand situation is deteriorating, and crude oil prices are falling with it,” said Bob Yawger, director of energy futures at Mizuho in New York. He added that China’s economy is at risk of entering a deflationary cycle, which could further reduce demand.
In the United States, refiners are expected to cut back production as the summer driving season ends in early September. Valero Energy, the nation’s second-largest refiner, announced that its refineries would operate at 92% capacity in the third quarter, down from 94% in the second quarter.
Meanwhile, in the Middle East, there is growing optimism about a ceasefire in Gaza. U.S. officials believe that parties are closer than ever to agreeing on a six-week ceasefire, which could ease regional tensions and supply concerns.
Baker Hughes reported an increase of five U.S. oil drilling rigs, bringing the total to 482 this week. This marks the first monthly increase since March, suggesting a potential rise in future output.
Conclusion
Despite recent better-than-expected U.S. GDP growth figures initially supporting the crude market, these gains were overshadowed by concerns about China’s weakening demand. “Without such rapid growth in electricity demand, we would be seeing a decline in global coal use this year. And the structural trends at work mean that global coal demand is set to reach a turning point and start declining soon,” stated Keisuke Sadamori, IEA director of energy markets and security.
The combination of declining Chinese demand, potential easing of Middle East tensions, and seasonal production adjustments in the U.S. has led to a significant drop in oil prices. Market participants will continue to monitor these factors closely as they shape the future of global oil demand and supply.
Source: Reuters
