Oil prices slid about 1% to settle at a seven-week low on Tuesday as investors worried that demand from China could be weakening. At the same time, OPEC+ seems likely to stick to plans to increase supplies.
Market participants have been discussing a possible ceasefire deal in Gaza that could reduce the geopolitical risk premium for crude prices.
Brent futures delivery fell $1.15, or 1.4%, to settle at $78.63. US West Texas Intermediate (WTI) crude fell $1.08, or 1.4%, to $74.73.
That was the lowest close for both benchmarks since June 5. For a second day, they remained in technically oversold territory.
US futures for diesel and gasoline also closed at their lowest since early June.
According to a Reuters poll, manufacturing activity in China, the world’s largest crude importer, likely shrank for a third month in July. Chinese leaders have vowed to step up support for the economy. However, investors expect such measures to be limited since the Third Plenum policy meeting reiterated existing goals.
In Lebanon, an Israeli air strike targeted a senior Hezbollah commander in Beirut’s southern suburbs in what the Israeli military called retaliation for a cross-border rocket attack over the weekend that killed 12 children and teenagers.
Some analysts have said Israel’s measured response could signal a deal was close on Gaza.
A ceasefire deal with Hamas has “the potential to (remove) $4 to $7 (a barrel) of risk premium out of the market,” Bob Yawger, director of energy futures at Mizuho, said in a note.
On Thursday, top ministers from OPEC+, the Organization of the Petroleum Exporting Countries (OPEC), and allies like Russia will meet to review the market. They will discuss a plan to start unwinding some output cuts from October. No changes are currently expected.
US INVENTORY DATA DUE
Weekly US oil storage data is due from the American Petroleum Institute (API) trade group later on Tuesday and the US Energy Information Administration (EIA) on Wednesday.
Analysts projected that US energy firms pulled about 1.1 million barrels of crude out of storage during the week ended July 26. [EIA/S] [API/S]
If correct, that would be the first time US crude stocks declined for five weeks since January 2022.
US job openings fell modestly in June, and data for the prior month was revised higher, suggesting the labour market continued to cool. Analysts say this makes the Federal Reserve more likely to reduce interest rates.
The Fed is expected to hold its benchmark overnight interest rate steady at its July 30-31 meeting and signal that rate cuts may begin as soon as the central bank’s September meeting.
The Fed hiked rates aggressively in 2022 and 2023 to tame a surge in inflation. Lower rates can boost economic growth and oil demand.
The US is considering fresh sanctions on OPEC member Venezuela following disputed results in the South American presidential election.
President Nicolas Maduro’s victory in the latest Venezuelan election “is a headwind for global supply, as this could result in tighter US sanctions,” ANZ analysts said in a note. They estimate that such a scenario could cut Venezuela’s exports by 100,000-120,000 barrels daily.