Oil markets consolidate July’s gains as China prepares stimulus measures
Oil prices eased this morning in early trading but remain above $80 per barrel, with predictions of stimulus measures in China propping up demand hopes and underpinning both major benchmarks.
Brent Crude was down 0.42 per cent but remains elevated at $80.73 per barrel while WTI Crude is down 0.44 per cent at $76.73 per barrel – with investors awaiting fresh market cues before the next price movement.
The two benchmarks rose around two per cent last week, completing four consecutive weeks of gains, with prices recovering amid expectations of tightening supplies this year following swingeing cuts from OPEC and its allies, which represent a five per cent supply reduction in the market.
There are now growing expectations China will boost its flagging economy with fresh stimulus, which increase oil demand in the world’s second largest oil consuming country.
Last week, China’s state planner announced its intention for new measures to spur private investment in infrastructure, and that it will also provide financing support for private projects.
“China is struggling to recover the growth levels we had been used to in the pre-pandemic years, and, being the world’s largest crude importer, that is denting future oil demand prospects,” said Ricardo Evangelista, senior analyst, at Activ Trades.
“The announcement on Wednesday that Beijing plans to deploy economic stimulus measures brought some hope to oil traders. Such measures could reset expectations, upgrading demand forecasts and boosting oil prices,”
Other factors propping up prices include escalating conflict in Ukraine after Russia withdrew from the long-standing grain export deal in the Black Sea.
Meanwhile, US energy firms have made their heaviest oil rig cuts since early June, with operating units down seven to 530 according to Baker Hughes data shared with news agency Reuters.
Investors have already priced in fresh 25 basis point hikes from the Federal Reserve and European Central Bank this week – meaning the focus from investors will now be on whether Fed Chair Jerome Powell and ECB President Christine Lagarde will indicate further measures or if interest rates are close to peaking.
Samer Hasn market analyst at XS.com argued that a “less hawkish speech than expected may lead to a weakening of the US dollar and thus support oil prices.”
“We also await the European Central Bank’s interest rate decision on Thursday, in addition to waiting for more important data from the US economy, most notably the GDP numbers for the second quarter and the Personal Consumer Expenditure (PCE) figures for the month of June,” he said, outlining future factors in prices.
Rising interest rates have weighed down investments and strengthened the US currency, making dollar-denominated commodities more expensive for holders of other currencies – reducing demand.
As for OPEC, the United Arab Emirates Energy Minister Suhail al-Mazrouei revealed last Friday that he believes the cartel’s actions to support the oil market are sufficient for now but that group is “only a phone call away” if further steps are needed.