- US crude inventories fell for the sixth week in a row.
- Data from China revealed that crude imports fell to a new low for the year.
- Markets are watching the Middle East war, where tensions have recently escalated.
Oil gained over 2% on Wednesday and extended the gains into Thursday as data revealed a massive drop in US crude inventories. At the same time, supply concerns amid Libya’s lower oil production boosted prices.
WTI (Source: Nymex)
Data on Wednesday showed that US crude inventories fell for the sixth week in a row. Stocks fell by 3.7 million barrels, beating analysts’ expectations for a 700,000 barrel draw. This continued decline is a sign of robust demand and tight supplies. However, despite the solid demand in the US, the global outlook remains poor due to China’s weak economic performance.
Data from China revealed that crude imports fell to a new low for the year. Therefore, fuel consumption in the country has dropped due to the struggling economy. Since China is the largest oil consumer, a drop in demand means a poor outlook for global oil consumption.
Furthermore, oil received support from supply concerns as Libya’s oil production fell. Protests led to a drop in production at the Sharara oilfield, raising fears that the oil supply would tighten.
Elsewhere, markets watched the Middle East war, where tensions have recently escalated. Last week, senior members of Hamas and Hezbollah died, increasing the risk of retaliation and a wider war. Moreover, attacks on ships in the Red Sea continued, disrupting the oil supply. Due to these attacks, most vessels take longer routes to supply oil, causing delays and shortages.
Oil’s recent recovery comes after a steep decline on Monday amid fears of a US recession. Friday’s US labor market data caused widespread panic in the global markets, affecting oil prices. The data revealed slower-than-expected job growth in July and an unexpected jump in the unemployment rate. The unemployment rate hit a three-year high of 4.3%, raising fears of a looming recession.
However, policymakers calmed the situation by noting that the risk of a recession was still low. Moreover, they said the Fed will likely start lowering borrowing costs at the September meeting. The downbeat data also led to a surge in Fed rate cut expectations. After the panic died down, rate cut optimism boosted prices. Additionally, data on Monday showed a bigger-than-expected expansion in the US services sector, further easing fears of a recession.
