Oil Prices Fall Amid Concerns Over Demand

By Scott DiSavino

NEW YORK (Reuters) – Oil prices slid about 1% to settle at a seven-week low on Tuesday as investors worried that demand from China could be weakening while OPEC+ seems likely to stick to plans to increase supplies.

Market participants have been discussing a possible ceasefire deal in Gaza that could reduce the geopolitical risk premium for crude prices.

Brent futures fell $1.15, or 1.4%, to settle at $78.63. U.S. West Texas Intermediate (WTI) crude dropped $1.08, also 1.4%, to $74.73. This marks the lowest close for both benchmarks since June 5, maintaining them in technically oversold territory for a second day.

U.S. futures for diesel and gasoline also closed at their lowest levels since early June.

Manufacturing activity in China, the world’s largest crude importer, likely shrank for a third month in July, according to a Reuters poll. Chinese leaders have promised to boost economic support, but measures are expected to be limited since the Third Plenary policy meeting largely reiterated existing goals.

In Lebanon, an Israeli air strike targeted a senior Hezbollah commander in Beirut’s southern suburbs as retaliation for a cross-border rocket attack that claimed the lives of 12 children and teenagers over the weekend. Some analysts speculate that Israel’s measured response might indicate a nearing deal regarding Gaza.

A ceasefire with Hamas could potentially remove $4 to $7 (per barrel) of risk premium from the market, noted Bob Yawger, director of energy futures at Mizuho.

OPEC+ ministers will meet on Thursday to review the market, including plans to begin unwinding some output cuts from October, with no changes expected currently.

U.S. Inventory Data Due

Weekly U.S. oil storage data is anticipated from the American Petroleum Institute (API) later on Tuesday and the U.S. Energy Information Administration (EIA) on Wednesday. Analysts estimate that U.S. energy firms drew about 1.1 million barrels of crude from storage for the week ending July 26. If accurate, this would mark the first decline in U.S. crude stocks for five weeks since January 2022.

U.S. job openings fell modestly in June, with prior month data revised higher, indicating a cooling labor market, which could make it more likely the Federal Reserve will lower interest rates. The Fed is expected to keep its benchmark overnight interest rate steady at its July 30-31 meeting, hinting that rate cuts might begin by September.

The Fed raised rates aggressively in 2022 and 2023 to curb inflation. Lower rates can stimulate economic growth and increase demand for oil.

The U.S. is considering imposing fresh sanctions on OPEC member Venezuela following questionable results in the country’s presidential election. ANZ analysts noted that President Nicolas Maduro’s victory could lead to tighter U.S. sanctions, potentially reducing Venezuela’s exports by 100,000-120,000 barrels per day.