Oil prices hover near two-week low over easing MidEast tensions, weak China data; Brent at $77/bbl

Global crude oil prices declined on Tuesday, August 20, hovering near a two-week low as Middle East supply concerns eased after Israel accepted a proposal to tackle disagreements blocking a ceasefire deal in Gaza and as economic weakness in China weighed on the country's fuel demand. China is one of the top consumers of crude oil apart from India.

Brent futures for October delivery fell 27 cents, or 0.4 per cent, to $77.39 a barrel. US West Texas Intermediate (WTI) crude for September fell 21 cents, or 0.3 per cent, to $74.16 on its last day as the front-month. The more actively traded WTI futures for October, which will soon become the front month, were down about 27 cents to $73.39 per barrel.

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What's weighing on crude oil?

-Analysts said that they expect a volatile session today as efforts toward an Israeli/Gaza ceasefire appear to be gaining enough traction to announce an official deal. US Secretary of State Antony Blinken visited Egypt and pushed for progress toward a Gaza ceasefire and hostage release deal. Other major differences still need to be resolved in talks this week.

-According to analysts, despite ongoing ceasefire negotiations, clashes between Israel and Hamas continue, and the markets will remain highly sensitive to any developments in the region. If the market fundamentals don't break this bearish trend, OPEC may hesitate to unwind their voluntary cuts anytime soon.

-OPEC, the Organization of the Petroleum Exporting Countries (OPEC), and allies like Russia have said global oil demand growth must accelerate in the coming months. Otherwise, the market will struggle to absorb the group's planned increase in supply from October.

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-OPEC member Saudi Arabia, the world's biggest oil exporter, said crude exports fell to 6.047 million barrels per day (bpd) in June from 6.118 million bpd in May. Data from China, the world's second-largest economy, showed that new home prices fell in July at their fastest pace in nine years, industrial output slowed, export and investment growth dipped, and unemployment rose.

-Analysts said that the main culprit is China, whose economic struggles are mirrored in falling product export figures, sluggish refinery runs and waning thirst for foreign crude oil. US prices for heating oil futures fell to their lowest since May 2023 for a second straight day. The heating oil crack spread, which measures refining profit margins, stayed near its lowest since November 2021.

-Prices for US gasoline futures fell to their lowest since February 2024. According to news agency Reuters, analysts projected US energy firms pulled about 2.9 million barrels of crude out of storage during the week ended August 16. 

-If correct, that would be the seventh time US crude stocks declined in the past eight weeks. There was a withdrawal of 6.1 million barrels during the same week last year and an average decrease of 3.4 million barrels over the past five years (2019-2023).

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Where are prices headed?

WTI crude oil fell three per cent yesterday, dropping to $74.20 per barrel, weighed down by concerns about reduced demand from top importer China and the prospect of easing supply disruptions amid ongoing ceasefire talks. According to analysts, China produced 6.1 per cent less fuel in July than the previous year, marking the fourth consecutive monthly decline, owing to weak fuel demand and lower profit margins. 

‘’China's oil processing rate fell to approximately 13.91 million barrels, the lowest level since October 2022. US Secretary of State Antony Blinken announced that Israel has agreed to a ceasefire proposal for Gaza, with the next step dependent on Hamas's acceptance of the plan aimed at de-escalating the long-standing conflict,'' said Kaynat Chainwala, AVP-Commodity Research, Kotak Securities.