On 29 July 2024, oil prices experienced a rebound, reversing last week’s declines, driven by heightened concerns over escalating conflict in the Middle East. The rebound was further driven by a combination of dwindling US crude inventories and escalating supply risks from wildfires in Canada, which have added pressure to the market.
This uptick follows a rocket attack in the Israeli-occupied Golan Heights, which has been attributed by Israel and the United States to the Lebanese armed group Hezbollah. In response, Brent crude futures edged up by 40 cents, or 0.5%, to $81.53 per barrel by 0650 GMT, while US West Texas Intermediate (WTI) crude futures rose 34 cents, or 0.4%, reaching $77.50 per barrel, as reported by Reuters.
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The previous week had seen Brent crude prices decline by 1.8%, and WTI by 3.7%, largely due to diminishing demand from China and tentative hopes for a ceasefire in Gaza. The conflict’s intensity is further underscored by Hezbollah’s denial of involvement in the attack, which marks the deadliest incident in Israeli or annexed territory since the onset of the Gaza war on October 7, 2024.
Market Uncertainty Reignites Oil Buying
This escalation has rekindled market fears, prompting renewed buying interest in oil. Nonetheless, gains have been tempered by persistent concerns over weakening demand from China. Recent data revealing an 11% drop in China’s fuel oil imports for the first half of 2024 has cast a shadow over the global demand outlook, particularly as China remains the world’s largest crude importer.
Demand dynamics continue to exert significant pressure on crude oil prices. The economic deceleration in China during the second quarter, coupled with muted domestic consumer spending, has been a pivotal factor.
In the United States, energy firms have responded to these pressures by increasing the number of oil and natural gas rigs for the second consecutive week. According to Baker Hughes, the monthly rig count has surged to its highest level since November 2022.
At the same time, the oil market is closely monitoring Venezuela, where the electoral authority has declared President Nicolas Maduro the victor of the recent election with 51% of the vote. This outcome diverges sharply from multiple exit polls that had forecast an opposition win.
US Secretary of State Antony Blinken has voiced serious concerns, suggesting that the results may not accurately reflect the electorate’s will. The US has previously indicated that it would ‘calibrate’ its sanctions policy towards Venezuela based on the unfolding electoral developments in this key OPEC nation.
Brent Crude Reaches $81.43 Per Barrel, WTI Gains 0.6% as Market Rebounds
Oil prices reversed their downward trend on Wednesday, 24 July, ending a three-session streak of losses. By 0817 GMT, Brent crude futures for September had risen by 42 cents, or 0.5%, reaching $81.43 per barrel. Similarly, US West Texas Intermediate (WTI) crude for September gained 42 cents, or 0.6%, climbing to $77.38 per barrel.
Brent Crude Futures for September
- Increase: 42 cents (0.5%)
- New Price: $81.43 per barrel
US West Texas Intermediate (WTI) Crude for September
- Increase: 42 cents (0.6%)
- New Price: $77.38 per barrel
This recovery follows a period of significant decline, with WTI dropping 7% and Brent crude shedding nearly 5% over the past three sessions. The reduction in US crude oil, gasoline, and distillate inventories for the fourth consecutive week reflects sustained demand in the world’s largest oil consumer, according to data from the American Petroleum Institute (API).
Additionally, the ongoing wildfires in Canada have intensified supply concerns. These fires have led to production cuts and are threatening a substantial portion of supply, according to ING analysts. They noted, “The market is approaching oversold levels, and we anticipate that fundamentals will support higher prices through the remainder of the third quarter, given the prevailing deficit environment.”
The API data revealed a 3.9 million-barrel drop in crude stocks for the week ending July 19. Gasoline inventories fell by 2.8 million barrels, and distillates decreased by 1.5 million barrels. This marks the first instance of consecutive four-week declines in US crude stocks since September 2023.
Official government data on oil inventories is set for release on Wednesday, which could further influence market dynamics.
API Data (week ending July 19)
- Crude Stocks: Decrease of 3.9 million barrels
- Gasoline Inventories: Decrease of 2.8 million barrels
- Distillate Inventories: Decrease of 1.5 million barrels
- Four-week decline streak: First since September 2023
The prior session saw oil prices hit a six-week low, with Brent crude closing at its lowest since June 9, amid developments related to ceasefire talks between Israel and Hamas, as outlined by US President Joe Biden and mediated by Egypt and Qatar.
Gasoline and Natural Gas Also Decline
On Monday, the energy markets closed with notable declines across several key contracts.
The West Texas Intermediate (WTI) September contract settled at $75.81 per barrel, marking a decrease of $1.35, or 1.75%. Despite this drop, U.S. oil prices have risen by 5.8% year-to-date. Similarly, the Brent September contract fell by $1.35, or 1.66%, closing at $79.78 per barrel. The global benchmark has experienced a year-to-date gain of 3.6%.
West Texas Intermediate (WTI) September Contract
- Closing Price: $75.81 per barrel
- Decrease: $1.35 (1.75%)
- Year-to-Date Change: +5.8%
Brent September Contract
- Closing Price: $79.78 per barrel
- Decrease: $1.35 (1.66%)
- Year-to-Date Change: +3.6%
In the gasoline market, the RBOB Gasoline August contract saw a decrease of 4 cents, or 1.84%, bringing prices down to $2.41 per gallon. Gasoline prices have surged 14.9% year-to-date. Natural gas prices also experienced a decline. The Natural Gas August contract dropped by 9 cents, or 4.94%, to $1.90 per thousand cubic feet. Year-to-date, natural gas prices have fallen by 24.1%.
The spring saw oil prices driven higher by Middle East tensions, particularly when conflict between Israel and Iran seemed imminent. However, market responses have since been subdued, with no significant disruption to oil supplies. The oil market has largely discounted the Middle East conflict narrative following April’s limited exchange of fire between Iran and Israel, which did not escalate into a broader conflict or materially threaten energy supplies.
RBOB Gasoline August Contract
- Closing Price: $2.41 per gallon
- Decrease: 4 cents (1.84%)
- Year-to-Date Change: +14.9%
Natural Gas August Contract
- Closing Price: $1.90 per thousand cubic feet
- Decrease: 9 cents (4.94%)
- Year-to-Date Change: -24.1%
Further pressure on prices is also linked to ceasefire negotiations between Israel and Hamas, coupled with fears that China’s economic slowdown might weaken global oil demand. Additionally, crude oil shipments to India, the world’s third-largest oil importer, fell to their lowest level since February, according to government data.
WTI crude lost 7% over the last three sessions, while Brent declined nearly 5%. Conversely, a 0.12% drop in the US dollar index, which tracks the greenback against a basket of major currencies, to 91.75, is making oil imports cheaper for other countries, thereby supporting higher crude prices.
