Oil Prices Drop as Chinese Demand Weakens and Gaza Ceasefire Hopes Rise

Crude oil fell approximately 1.5% on Friday following a weekly decline driven by decreasing demand from China and optimism about a potential ceasefire in Gaza that could alleviate Middle East tensions and supply worries.

Brent crude oil closed at $81.13 per barrel, down $1.24 or 1.5%, while West Texas Intermediate (WTI) crude finished at $77.16 per barrel, dropping $1.12 or 1.4%.

Over the week, Brent decreased by more than 1%, and WTI fell over 3%.

Initially buoyed by better-than-expected U.S. GDP growth figures, oil markets faced setbacks as worries about declining Chinese oil demand took precedence.

China’s total fuel oil imports fell 11% in the first half of 2024, raising concerns about the country’s broader economic outlook.

Bob Yawger, director of energy futures at Mizuho, noted that China’s potential deflationary cycle threatens its status as the world’s largest crude oil importer.

“The Chinese demand situation is going down the tubes here, and crude oil prices are going down with it,” Yawger stated. He emphasized the negative implications of a deflationary trend for global markets.

In the U.S., the demand is also expected to ease as refiners prepare to reduce production with the summer driving season winding down.

Valero Energy, the second-largest U.S. refiner, announced plans to operate its refineries at 92% capacity in the third quarter, down from 94% in the previous quarter.

Meanwhile, progress in negotiations for a ceasefire in Gaza has contributed to the easing of supply concerns.

U.S. officials are optimistic about a potential six-week ceasefire agreement, which would include the release of hostages by Hamas. The prospect of peace in the region has further alleviated fears of supply disruptions.

In the U.S., Baker Hughes reported an increase in oil drilling rigs, with the count rising by five to 482 this week.

This marks the first monthly increase in rig numbers since March, suggesting potential growth in future output.

As the market continues to navigate these developments, the interplay between geopolitical factors and economic indicators will likely shape oil prices in the coming weeks.

The global market remains sensitive to shifts in demand, particularly from key players like China, and the ongoing political dynamics in the Middle East.