Oil prices eased on Monday as worries about demand in top importer China offset supportive U.S. economic news, OPEC+ supply restraint and ongoing Middle East tensions.
Brent futures fell 18 cents, or 0.2 per cent, to settle at $84.85 a barrel, while U.S. West Texas Intermediate (WTI) crude dropped 30 cents, or 0.4 per cent, to settle at $81.91.
“Chinese data including refinery runs and crude imports are not supportive,” said UBS analyst Giovanni Staunovo. “But demand growth elsewhere is still healthy.”
China’s economy grew much slower than expected in the second quarter as a protracted property downturn and job insecurity knocked the wind out of a fragile recovery, keeping alive expectations Beijing will need to unleash even more stimulus.
China’s refinery output fell 3.7 per cent in June from a year earlier，down for a third month on planned maintenance, while lower processing margins and lacklustre fuel demand pushed independent plants to cut output.
In the U.S., the market focused on the assassination attempt on former President Donald Trump, which some say could boost his re-election chances.
Federal Reserve Chair Jerome Powell said inflation readings for the second quarter do “add somewhat to confidence” that the pace of price increases is returning to the U.S. central bank’s target in a sustainable fashion, remarks that suggest a turn to interest rate cuts may not be far off.
The Fed hiked rates aggressively in 2022 and 2023 to tame a surge in inflation. Borrowing costs rose for consumers and businesses, slowing economic growth and reducing demand for oil.
Lower interest rates could boost oil demand.
Markets are pricing in a 94.4 per cent chance of the Fed cutting rates by at least 25 basis points in September, CME’s FedWatch Tool showed, after last week’s news that June consumer prices fell on a monthly basis for the first time in four years.
In the Middle East, geopolitical tensions continued to support oil prices, though ample spare capacity held by Saudi Arabia and other Organization of the Petroleum Exporting Countries (OPEC) members has limited price support, analysts say.
In the Red Sea, two vessels came under attack off Yemen’s port city of Hodeidah, with one ship reporting it had sustained some damage.
There was no immediate claim of responsibility for the attack. But since November, Iran-backed Houthi militants have launched drone and missile strikes in shipping lanes in the Red Sea and Gulf of Aden. The group says these actions are in solidarity with Palestinians affected by Israel’s war in Gaza.
In Iraq, the oil ministry said the OPEC member will compensate for overproduction since the beginning of 2024.
In Russia, Deputy Prime Minister Alexander Novak said the global oil market will be balanced in the second half of the year and thereafter, thanks to the OPEC+ deal on production supply.
OPEC+, which groups OPEC and allies like Russia, has implemented a series of output cuts since late 2022 to support the market. The group agreed on June 2 to extend the latest cut of 2.2 million barrels per day until the end of September and gradually phase it out from October.
Russia’s Novak also said the country might decide to reinstate a gasoline export ban from August should there be supply shortages on the domestic fuel market.