Oil Prices Slump Amid Global Demand Concerns and Middle East Tensions

2 min read | August 03, 2024 12:20 AM AEST | By Team Kalkine Media

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Oil Prices Slump Amid Global Demand Concerns and Middle East Tensions — Image source: Shutterstock

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Headlines

Demand Concerns in Major Economies: Oil prices are on track for a fourth consecutive weekly decline as economic indicators from the US and China show weakening demand.

Geopolitical Risks Impact: Despite a brief rise due to Middle East tensions, oil prices continue to fall.

Market Dynamics and Future Outlook: Market metrics indicate less tight conditions with a narrowing gap in Brent crude contracts.

Oil prices are on track for a fourth consecutive weekly decline as concerns about demand in the world's two largest economies overshadow heightened geopolitical risks. Brent crude traded near $80 a barrel after falling more than 1% on Thursday, while West Texas Intermediate was below $77. Factory activity in both the US and China contracted on Thursday, signaling weakness in manufacturing sectors.

Crude prices surged briefly on Wednesday following the killing of leaders from Hamas and Hezbollah, which escalated tensions in the Middle East. However, as Vandana Hari, founder of Vanda Insights in Singapore, noted, Demand concerns are shuffling back to the center stage. Any knee-jerk geopolitical risk premium in crude is always susceptible to correction in the cold light of day.

Oil is set for its longest streak of weekly declines since December, with lingering concerns about consumption in China, the world's largest importer. Additionally, OPEC+ is poised to increase production from next quarter, a plan reiterated during a monitoring meeting on Thursday. Despite these declines, futures in the oil and gas stocks sector remain modestly higher this year, supported by expectations that monetary easing in the US will boost consumption. Federal Reserve Chair Jerome Powell indicated that an interest rate cut could happen as soon as September.

Market metrics suggest that conditions are becoming less tight. Although still in a bullish, backwardated structure, the gap between Brent’s two nearest contracts has narrowed. The spread was last at 60 cents a barrel in backwardation, compared with more than $1 two weeks ago.

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