Oil prices stabilized during Asian trade on Thursday, facing pressure from apprehensions about lackluster summer demand in the U.S. and economic weakness in China. The recovery of the dollar further impacted the market sentiment.
Throughout the week, crude prices experienced significant fluctuations as investors assessed various factors, including weak Chinese economic data, potential stimulus measures in China, and mixed reports on U.S. inventories.
On Thursday, prices trended downwards following reports showing that fuel demand in the U.S. was struggling despite the summer season’s travel activities. Moreover, U.S. inventories recorded a smaller reduction than anticipated.
Brent oil futures experienced a 0.2% decline, reaching $79.53 per barrel, while West Texas Intermediate crude futures fell 0.1% to $75.33 per barrel by 21:13 ET (01:13 GMT). Both contracts exhibited marginal declines for the week, indicating that the three-week rally was losing momentum.
The recovery of the dollar, after hitting 15-month lows earlier in July, also played a role in suppressing oil prices, with investors preparing for the upcoming Federal Reserve meeting.
Mixed signals arose from the data released on Wednesday, revealing that U.S. inventories decreased by 708,000 barrels in the week ending July 14, which was significantly lower than the expected drawdown of 2.44 million barrels. This followed a higher-than-expected increase in crude stockpiles during the preceding week.
Market sentiment remained uncertain concerning U.S. gasoline consumption, as inventories also declined less than predicted during that week. However, there was an overall rebound in petroleum products supplied to the market from a six-month low.
Given the mixed inventory readings and growing risk aversion ahead of the Federal Reserve meeting, traders decided to secure profits after crude prices reached seven-week highs in early July. Nonetheless, analysts maintained a positive outlook for oil prices in the latter half of the year due to tightening supplies and a reduced likelihood of interest rate hikes.
The Energy Information Administration (EIA) projected higher crude prices in the second half of 2023 and throughout 2024, attributing this trend to ongoing inventory drawdowns and the effects of recent OPEC production cuts.
According to the EIA, Brent is expected to reach the “mid-$80 per barrel range” by the end of 2024, while WTI is likely to follow a similar trajectory but at a $5 discount to Brent.
The agency also foresees robust crude consumption in the coming months, led by China and India, while U.S. petroleum consumption is expected to increase as well.
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