Oil Prices Significantly Weaken Over Past Week

Oil prices have weakened significantly over the past week, with front-month Brent falling below $80.60 per barrel intra-day on 23 July, taking the fall from the 5 July peak to over $7 per barrel.

That’s what analysts at Standard Chartered Bank, including Commodities Research Head Paul Horsnell, said in a report sent to Rigzone by Horsnell late Tuesday.

“Part of the move down is due to another almost random Commodity Trading Advisor (CTA) switch towards the short side, as well as poor technicals,” the analysts stated in the report.

“However, we think a large part comes from an intensification of trader concerns about demand prospects, particularly in light of softness in recent China macro data,” they added.

In the report, the analysts highlighted that, at a global level, the most recent near-complete month of oil demand data is May, noting that they calculate May demand at 102.5 million barrels per day.

“One hand that is the second-highest monthly average ever, surpassed only by August 2023, but on the other hand we find it slightly disappointing, having forecast a new high above 103 million barrels per day,” they said.

“Breaking down the data by country, the main surprise is the 360,000 barrels per day (14.4 percent) year on year fall shown in the initial Canadian data. OECD Europe oil demand was 324,000 barrels per day (2.4 percent) lower year on year, with particularly weak readings from France and the UK, and the other main drag on demand was Saudi Arabia with a 121,000 barrel per day (3.7 percent) year on year fall,” they added.

“In all, the relative weakness seems largely idiosyncratic, rather than the result of general or China-led demand weakness. In a market looking for a tightening and expecting demand to perform, the May data is perhaps weak enough to cause some concern and softening of sentiment, but we are not convinced that the data supports a belief in a broader weakening demand trend,” they continued.

In an oil macro update sent to Rigzone by Rystad Energy on Tuesday, Global Market Analysis Director Claudio Galimberti said, “ceasefire negotiations in the Middle East and an uncertain macroeconomic outlook in China are exerting downward pressure on oil prices this week”.

Galimberti noted in the update that President Biden’s decision to drop out of the leadership race has not had a material impact on oil markets but added that the U.S. presidential campaign will likely impact oil prices due to the centrality of energy policy on both tickets.

“Crude prices in the next few days will largely hinge on economic news from China, the likelihood of U.S. rate cuts, and how negotiations progress in the Middle East,” Galimberti stated in the update.

In a research note sent to Rigzone by the JPM Commodities Research team late Wednesday, J.P. Morgan analysts said, “the estimated value of open interest across energy markets declined by $8 billion week on week (minus one percent week on week)”.

“The decrease was primarily driven by crude oil and petroleum products, as price weakness across the curves more than offset the healthy $9 billion week on week of net inflows across all trader types,” they added.

“Our oil strategists outline a healthy demand growth of 1.6 million barrels per day in July and continued draw down in observable oil inventories,” they continued.

The J.P. Morgan analysts highlighted in the note that “price momentum generally declined across all markets under coverage over the week”.

“Notably, the short-term momentum trading signal on ICE Brent, NYMEX WTI, ICE Gasoil, LME Copper, COMEX Silver, NYMEX Platinum and NYMEX Palladium switched negative from a ‘buy’ to ‘sell’ signal, as did the long-term momentum across LME Aluminium. The long-term lookback on NYMEX Gasoline is approaching a ‘sell’ signal switch,” they added.

Source: www.rigzone.com