By Giulia Petroni
Here is a look at what happened in oil markets in the week of Aug. 5-9 and what the focus will be in the days to come.
OVERVIEW: Oil prices are on track for solid weekly gains despite a tumultuous start of the week amid a broader selloff in financial markets. Crude benchmarks dropped to seven-month lows on Monday after disappointing U.S. labor data stoked fears of a recession, but soon regained some ground on improving market sentiment and heightened geopolitical risks. Brent crude, the international oil benchmark, currently trades around $79 a barrel, while the U.S. oil gauge West Texas Intermediate is around $76 a barrel.
MACRO: Last week's disappointing U.S. jobs data sparked a sharp market selloff, dragging down oil prices. But the latest figures showed U.S. service sector activity rebounded in July, while U.S. weekly jobless claims data pointed to a drop in the number of Americans applying for unemployment benefits, easing fears of a weakening labor market.
In China instead, consumer inflation rose more than expected last month, highlighting some improving trends in the country, but the data wasn't strong enough to dispel concerns about weak demand in the world's second-largest economy, according to market watchers.
SUPPLY AND DEMAND: The Energy Information Administration's latest inventory report was once again bullish for oil, with commercial crude oil stocks down by 3.7 million barrels to 429.3 million barrels in the week ended Aug. 2, against projections of a 500,000 barrels fall. Gasoline inventories instead rose by 1.3 million barrels last week to 225.1 million barrels, despite analysts' expectations of a 1.3 million barrels decrease.
In its monthly report released Tuesday, the EIA lowered its global demand-growth estimate for next year to 1.6 million barrels a day from 1.8 million barrels a day previously, citing slowing economic growth and weak fuel consumption in China. The agency though said it expects oil prices to recover from recent losses as draws on global inventories accelerate in the second half of the year.
Meanwhile, renewed supply-side issues following a halt to production at Libya's Sharara oil field--the largest in the country--also provided some support to prices. But further gains are still capped by concerns over the demand outlook in China, especially after the country reported a fall in crude oil imports to 10.01 million barrels a day in July, the lowest figure since September 2022, according to analysts.
GEOPOLITICAL RISKS: Crude is benefiting from a greater risk premium this week after tensions in the Middle East sharply escalated, with Iran threatening to retaliate against Israel following the assassination of Hamas's political leader in Tehran. A direct confrontation between Iran and Israel is keeping markets on edge, fueling concerns over a full-scale regional war that would threat oil supplies and dampening hopes for a ceasefire in Gaza any time soon.
Meanwhile, Ukraine's incursion into Russia's Kursk region and unverified reports that Ukrainian troops seized a key gas-transit point near Sudzha are also intensifying fears of disruptions across energy markets.
WHAT'S AHEAD: At a macro level, investors will be focusing on a batch of U.S. data--the Consumer Price Index, retail sales, initial jobless claims and the August preliminary consumer sentiment report from the University of Michigan--as they look to find further reassurance over the state of the economy following the markets selloff. Meanwhile, geopolitical risks will likely continue to have a significant impact on price trends, with all eyes set on Iran's next move.
Monthly reports from the Organization of the Petroleum Exporting Countries and the International Energy Agency due on Monday and Tuesday, respectively, will be a key area of focus for energy markets, with investors expected to keep a close eye on the demand outlook in light of recent concerns.
Write to Giulia Petroni at giulia.petroni@wsj.com
(END) Dow Jones Newswires
08-09-24 1258ET
