Crude oil prices have had a volatile week, with benchmark Brent futures dropping to $75.05 a barrel on Monday, the lowest since January, before rebounding on Wednesday to hit a high of $78.87. In effect crude is being tossed about by a series of conflicting forces, with a dose of geopolitical risk thrown in for good measure.
There are two major competing influences driving prices and it’s not surprising that they are in the world’s two most important countries for crude. Starting with China, the world’s biggest importer, and data this week confirmed that demand is unabashedly weak.
As Chen Aizhu reports here, July imports dropped to the lowest since September 2022 as weak refinery margins and subdued fuel demand curbed processing rates. Imports dipped below the 10 million barrels per day (bpd) level, dropping to 9.97 million bpd. For the first seven months of 2024, imports were 10.90 million bpd, down 2.9%, or about 320,000 bpd, from the same period last year. This weakness stands in direct contrast to the demand growth forecasts from leading industry bodies such as OPEC and the IEA.
But while China remains a demand concern, the United States is fuelling bullish sentiment in crude, as inventories fall and oil and gas production show signs of flattening out. Crude stockpiles dropped by 3.7 million barrels to 429.3 million in the week to Aug. 2, compared with market analysts’ expectations in a Reuters survey for a much smaller 700,000-barrel draw.
The lower trend in oil prices seems to be finally hitting production in the United States, with production growth easing. As John Kemp writes here, output growth compared with the prior year slowed to just 400,000 bpd from as much as 800,000 bpd to 1.0 million bpd early in 2023.
The overall picture in the United States, the world’s biggest oil consumer, is that supply growth is easing and inventories are under pressure, both of which should be bullish for prices. But whether the U.S. dynamics can outweigh China’s soft demand has yet to be determined.
