As a result of worries about demand in China, one of the world’s biggest energy consumers, crude oil prices fell on Tuesday on the global commodities market.
According to ING commodities strategists, the pessimistic mood has affected not just oil but also a significant portion of the commodity complex, resulting in a significant amount of speculative selling and more pressure on oil prices.
On Tuesday, the price of a barrel of Brent dropped by 0.33% to $78.79. At the same time, West Texas Intermediate (WTI), the benchmark for the United States, was trading at $75.56 a barrel, down 0.33% from the previous session’s closing price of $75.81.
For the first time since early June, the market was below $80/bbl as a result of yesterday’s 1.66% decrease in Brent. The key factor continues to propel the oil market, following a raft of fairly bearish data in recent weeks.
China is important for the global oil balance, as it is expected to make up more than 50% of global oil demand growth in 2024, so slower-than-expected growth can dramatically change the balance, ING said in an emailed note.
The market will also be closely watching any developments in Venezuela following the elections over the weekend, according to commodity strategists at ING.
The current president, Nicolas Maduro, has claimed victory in the election, although there are doubts over the result, with opinion polls in the lead-up to the election showing a strong victory for the opposition.
The US has said potential further sanctions will depend on whether the government releases voting data. While the US eased oil sanctions against Venezuela last year, these were re-imposed earlier this year after the US felt the government did not live up to its side of a deal for fairer elections.
The US Department of Energy (DoE) agreed to buy 4.65 million barrels of crude oil for its Strategic Petroleum Reserve (SPR) for delivery between October and December 2024.
In an effort to refill the SPR, the DoE has said that it has bought a total of 43.25 million barrels at an average price of around US$77 per barrel, lower than the $95 average at which oil was sold in 2022 during the emergency releases.
Crude oil prices continue to be depressed by demand concerns in China as it grapples with a slowdown in economic recovery. The gross domestic product (GDP) of China rose by 4.7% in the second quarter of 2024, below market expectations.
In spite of the fact that Beijing unexpectedly lowered key short-term policy rates and benchmark lending rates last week to boost the economy, investors’ sentiment surrounding Chinese markets remained weak.
Uncertainty over the country’s oil demand fuels market players’ fear that imports and refining activity could also remain low. Meanwhile, market players disregarded the risk premium from prices amid a lack of immediate escalation in tension in the Middle East.
White House National Security Council spokesman John Kirby said on Monday that concerns about an all-out war in the Middle East are ‘exaggerated’ and diplomatic conversations continue to reduce tensions between Israel and Lebanese group Hezbollah after a deadly attack in the occupied Golan Heights.
While the exchange of border fire between Israel and Hezbollah continues, fears of an all-out war have recently grown, especially after Saturday’s attack in the town of Majdal Shams that killed 12 people.
The escalation comes against the backdrop of a deadly Israeli onslaught on Gaza, which has resulted in the deaths of more than 39,300 people since last October. Meanwhile, market players will be watching the US Federal Reserve’s (Fed) meetings to gauge the oil market’s trajectory.
The Fed will review its policy on July 30-31. While investors expect the bank to keep rates unchanged, they will also look for further evidence that a rate cut will happen at the September meeting.
