HG MARKETS:

Oil prices edged up slightly on Friday but remained on track for a third consecutive week of decline, driven by weak demand in China, the world’s largest crude importer, and expectations of a ceasefire agreement in the Gaza conflict and related Middle East violence.Brent crude futures for September rose by 12 cents, or 0.2%, to $82.49 a barrel. U.S. West Texas Intermediate crude for September increased by 13 cents, also 0.2%, to $78.41 per barrel.

The gains observed on Thursday and Friday were primarily attributed to data indicating that the U.S. economy grew at a faster-than-expected rate during the second quarter. Despite pressure from high interest rates and persistent inflation, this data spurred optimism about a potential interest rate cut by the Federal Reserve in September. The upcoming PCE price index data, the Fed’s preferred inflation gauge, is anticipated to provide further insights ahead of a Fed meeting where some officials have advocated for rate cuts.

Additionally, steady drawdowns in U.S. oil inventories offered positive signals to the oil markets, as fuel demand remained robust during the travel-heavy summer season. Despite this, the benchmarks have fallen by approximately 5% over the past three weeks. Brent crude is trading marginally lower this week, while WTI has declined by over 2%.

Recent data from China revealed an 8.1% drop in apparent oil demand to 13.66 million barrels per day in June, raising concerns about consumption. According to analysts at ANZ Research, the decline is likely driven by reduced demand for gasoline and diesel as new energy and autonomous driving vehicles gain popularity.

Adding to the downward pressure on prices were increased hopes for an end to the Gaza conflict. U.S. Vice President Kamala Harris urged Israeli Prime Minister Benjamin Netanyahu on Thursday to support a ceasefire deal aimed at alleviating the suffering of Palestinian civilians, adopting a firmer stance than President Joe Biden. U.S. officials believe that the parties are closer than ever to agreeing on a six-week ceasefire in exchange for the release of women, sick, elderly, and wounded hostages held by Hamas.

In summary, while recent economic data and robust U.S. fuel demand have provided some support to oil prices, weak demand in China and the potential for a ceasefire in the Gaza conflict have kept oil markets under pressure, leading to a significant decline in benchmark prices over the past few weeks.

This week, Beijing unexpectedly cut a range of lending rates in an effort to further loosen monetary policy amid growing concerns over sluggish economic growth in the country. Oil’s downturn was partially triggered by GDP data from the previous week, which revealed that the Chinese economy grew less than anticipated in the second quarter. Beyond China, uncertainty increased regarding Japan following moderate inflation data from Tokyo.

A softer-than-expected core inflation reading led investors to question whether the Bank of Japan will have sufficient justification to raise interest rates next week. Any delay in a rate hike indicates diminished confidence in the Japanese economy.

Additionally, speculation over a ceasefire between Israel and Hamas weighed on oil prices. Reports from the White House suggested that the U.S. was close to brokering a deal, which prevented traders from factoring in a risk premium into oil prices.