- US crude stocks fell by 3.7 million barrels last week.
- China’s economy performed poorly in the second quarter, raising fears that oil consumption will drop.
- Talks of a ceasefire between Israel and Hamas have gathered steam.
Oil prices rose on Wednesday, ending three sessions of declines. The increase came amid a bigger-than-expected draw in US crude and gasoline inventories. Prices remained close to a six-week low because of worries about global oil demand and a potential ceasefire in the Gaza conflict.
Data on Wednesday revealed that crude stocks fell by 3.7 million barrels last week. This decline was bigger than the forecast of a 1.6 million barrel draw. Similarly, gasoline inventories plunged by 5.6 million barrels, well above estimates of a 400,000 barrel drop. These figures showed robust demand in the US during the period and supported oil prices.
However, there was still downward pressure on prices arising from global demand concerns. China is the largest consumer of oil. Notably, the country’s economy performed poorly in the second quarter, raising fears that oil consumption will drop. Moreover, data revealed that the country’s oil imports and refinery runs have fallen this year.
Consequently, the weak economic performance led to a meeting where top officials in China agreed to cut interest rates. This move is meant to spur growth and increase consumption.
Meanwhile, the outlook for demand in India, the third largest oil consumer, is also bleak. Data revealed that the country imported less oil in June due to weak consumption. Prices will decrease if big consumers buy less oil in the global market.
Elsewhere, talks of a ceasefire between Israel and Hamas have gathered steam in the last month, weighing on oil. Initially, the risk of an escalation had put a premium on prices due to possible supply disruptions. However, talks of a ceasefire reduce that risk and push prices lower.
US business activity (Source: S&P Global)
The Fed rate cut outlook remained mostly unchanged after Wednesday’s US PMI data showed a mixed picture. Business activity in the manufacturing sector unexpectedly contracted while the services sector expanded further.
Meanwhile, the composite PMI showed an overall increase in business activity in June. Markets expect the Fed to start cutting rates in September, which could boost oil demand. However, due to the resilient economy, policymakers could maintain a cautious tone.
On the supply side, wildfires in Canada raised fears of damages to oil pipelines, which could tighten the market.
