Oil Prices Drop Amid China Demand Concerns

By Shariq Khan

NEW YORK (Reuters) – Oil prices settled down nearly 2% on Friday, showing little change over the week with Brent crude below $80 a barrel, as investors tempered expectations of demand growth from top oil importer China.

Brent crude futures fell $1.36, or 1.7%, to settle at $79.68 per barrel. U.S. West Texas Intermediate crude futures declined by $1.51, or 1.9%, to $76.65.

Last week, Brent crude ended at $79.66 a barrel and WTI closed at $76.84.

On Thursday, data from China showed its economy lost momentum in July, with new home prices falling at the fastest pace in nine years, industrial output slowing, and unemployment rising.

This has raised concerns among traders about a slump in demand from the top oil importer, where refineries sharply cut crude processing rates last month due to weak fuel demand.

The Organization of the Petroleum Exporting Countries (OPEC) on Monday lowered its forecast for this year’s oil demand growth, citing softness in China. The International Energy Agency also noted weak demand in China when it revised its 2025 forecasts downward on Tuesday.

“It has been a volatile week in oil markets: on one hand, fears of supply disruptions from a wider Middle East war emerged, but on the other hand, slowing growth in China forced revisions of demand forecasts,” said Andrew Lipow, president of energy consultancy Lipow Oil Associates.

Oil futures increased at the beginning of the week as traders prepared for potential Iranian retaliation against Israel following the assassination of a Hamas leader. However, some of that risk was priced out since Iran has not taken action yet, according to analysts at Commerzbank Research.

“So far, supply disruptions have been more theoretical than actual,” noted Brett Friedman, contributor for market data provider OptionMetrics. “That allows the market to focus on the demand side,” he added.

A new round of Gaza ceasefire talks commenced on Thursday in Qatar but was paused until next week, with involved parties giving mixed signals about progress.

“Provided the situation in the Middle East does not escalate further, the oil price is likely to tread water,” Commerzbank analysts commented.

A series of data releases from the U.S. sustained oil prices: retail sales exceeded analysts’ expectations, and fewer Americans filed new jobless claims last week, boosting optimism regarding economic growth in the largest oil market.

According to independent oil analyst Gaurav Sharma, oil prices might lack direction until the U.S. Federal Reserve makes a decision about interest rates at its September meeting.

Low liquidity likely contributed to price volatility this week as many European and North American investors were still on holiday, noted UBS analyst Giovanni Staunovo.