By Giulia Petroni
Here is a look at what happened in oil markets in the week of July 1-5 and what the focus will be in the days to come.
OVERVIEW: Oil prices are on track for a fourth consecutive weekly gain after reaching levels last seen more than two months ago earlier this week. Brent crude currently trades around $87 a barrel, while West Texas Intermediate is around $84 a barrel. The benchmarks are buoyed by signs of a tightening market over the summer, renewed hopes that the U.S. central bank might start cutting interest rates soon, and heightened geopolitical risks in the Middle East.
MACRO: The U.S. nonfarm payrolls June report showed a rise in the unemployment rate and a moderation in payroll growth, bolstering the case for rate cuts this year, according to analysts. The Labor Department reported on Friday that the U.S. added 206,000 jobs last month, down from the 218,000 gained in May, while the unemployment rate ticked up to 4.1%.
Also the latest U.S. jobless data fuelled hopes for a September cut by the Federal Reserve and offered support to oil prices, as both first-time jobless claims and total unemployment numbers rose last week, signaling that the labor market is slowing down. According to analysts, a slowdown in growth momentum will support a disinflationary impulse in the coming months, with market pricing for a September rate cut now at 81% from 73% previously.
GEOPOLITICAL RISKS: Tensions remain elevated between Israel and Hezbollah, with the Iran-backed militia group firing hundreds of rockets at Israeli targets in retaliation for the killing of a high-ranking commander this week. Yet, efforts to secure a ceasefire and hostage release deal in Gaza gathered momentum again on Friday after Hamas made a revised proposal and Israel dispatched a delegation to Doha, Qatar.
SUPPLY AND DEMAND: The Energy Information Administration reported a larger-than-expected draw in U.S. crude and gasoline inventories last week--a positive signal on demand trends in the world's top oil consumer. Oil stocks fell by 12.2 million barrels to 448.5 million barrels in the week ended June 28, against analysts' expectations of a 1.1 million barrel fall, while motor gasoline inventories decreased by 2.2 million barrels. Oil prices were also supported by fears of supply disruptions due to Hurricane Beryl in the Atlantic, with meteorologists anticipating a particularly intense hurricane season this year.
Meanwhile, top oil exporter Saudi Arabia cut prices for all crude grades it sells to Asian customers for a second month in a row in August, underlying uncertainties about demand and rising pressure from robust supply growth from countries outside the Organization of the Petroleum Exporting Countries. State-owned oil giant Aramco set its official selling price for August loadings of its flagship Arab Light crude to Asia--its main market--at $1.80 a barrel over the Oman/Dubai average, from $2.40 a barrel in July.
NEXT WEEK: At a macro level, all eyes next week will be on Thursday's Consumer Price Index data for more cues on the path of inflation ahead of the Federal Reserve's meeting on July 31.
Traders will also be closely watching for the monthly energy and oil market reports from the Energy Information Administration on Tuesday, OPEC on Wednesday, and the International Energy Agency on Thursday. Analysts don't expect major adjustments to current forecasts on the demand side. "Last month, the agencies already took into account the production decisions made by OPEC+ at the beginning of June," Commerzbank Research's Barbara Lambrecht said in a note to clients.
On Friday, focus will turn on the release of China's trade balance for June. "China's crude oil imports have been rather disappointing in the last two months," Lambrecht said. "If there is no recovery in June against the backdrop of low margins in crude oil processing, this would probably put a damper on the oil price."
Write to Giulia Petroni at giulia.petroni@wsj.com
(END) Dow Jones Newswires
07-05-24 1214ET
