ISLAMABAD (PEN) : Oil prices eased on Thursday due to concerns over weakening demand in China, the world’s largest crude importer, and the anticipation of a potential ceasefire deal in the Middle East. This overshadowed the gains seen in the previous session following reports of declining U.S. inventories.
Brent crude futures for September dropped by 63 cents, or 0.8%, to $81.08 a barrel by 0355 GMT, while U.S. West Texas Intermediate crude for September also slid 63 cents, or 0.8%, to $76.96 per barrel.
Both benchmarks had seen a rise, breaking a series of declines after the Energy Information Administration (EIA) reported a 3.7 million barrel drop in U.S. crude inventories last week, surpassing analysts’ expectations of a 1.6-million-barrel draw. U.S. gasoline stocks decreased by 5.6 million barrels, significantly more than the anticipated 400,000-barrel draw, and distillate stockpiles fell by 2.8 million barrels against expectations of a 250,000-barrel increase.
“Even with the draws in U.S. crude and gasoline stocks, investors are still concerned about China’s weakening demand and the progress in ceasefire talks between Israel and Hamas,” said Hiroyuki Kikukawa, president of NS Trading, a unit of Nissan Securities.
This year, China’s oil imports and refinery operations have been lower than in 2023 due to weaker fuel demand amid sluggish economic growth, according to government data.
Additionally, a downturn in U.S. stock markets has dampened traders’ risk appetite. On Wednesday, all three main indexes on Wall Street closed lower.
Efforts to broker a ceasefire in the Gaza Strip between Israel and Hamas, mediated by Egypt and Qatar under a plan outlined by U.S. President Joe Biden in May, have gained momentum over the past month. On Wednesday, Israeli Prime Minister Benjamin Netanyahu presented a broad outline of a plan for a “deradicalized” post-war Gaza in a speech to the U.S. Congress, hinting at a possible future alliance between Israel and America’s Arab allies.
“If Middle East ceasefire talks progress, U.S. equities continue to decline, and China’s economic situation remains weak, we could see oil prices drop to early June levels,” said Satoru Yoshida, a commodity analyst with Rakuten Securities.
Priyanka Sachdeva, an analyst with Phillip Nova, added that without clarity on U.S. interest rate cuts, she does not foresee robust demand given China’s slow economic recovery.
The U.S. Federal Reserve is anticipated to cut rates twice this year, in September and December, according to a Reuters poll of economists, as resilient U.S. consumer demand calls for a cautious approach despite easing inflation. Lower interest rates typically spur economic growth, leading to increased oil consumption.
