An oil pump jack in Stanton, Texas, U.S. (Photo: Brandon Bell)
Oil futures slid by nearly 2% to seven-week lows by the close of trading in the U.S. on Monday, as global demand concerns outweighed rising geopolitical tension in the Middle East.
At market close, the Brent front-month (or September) futures contract was down 1.66% or $1.35 to $79.78 per barrel, having breached the $80 price-floor yet again after seven weeks. The West Texas Intermediate also ended the session down 1.75% or $1.35 at $75.81 per barrel.
Monday’s intraday declines follow a three week losing streak for oil, which may yet spillover into a fourth week. Traders appeared to focus on lackluster global demand and a distinct lack of economic turnaround signals from China.
That’s despite escalating tensions between Israel and Lebanon’s Iran-backed militia group Hezbollah and political unrest in OPEC member Venezuela.
With the Middle East’s crude oil output largely unaffected, and the situation in Venezuela remaining pretty fluid, the market awaits clear signals on the Northern Hemisphere’s summer demand in general, and that of the U.S. in particular, just as China’s economic picture remains mixed.
On July 20, China’s General Administration of Customs said the country’s total fuel oil imports dropped 11% in the first half of 2024. In volume terms, imports totaled 11.95 million metric tons, or just shy of 76 million barrels sparking a round of selling as traders fretted over the market direction of the world’s largest importer of crude oil.
Meanwhile, as global demand downsides accumulate, oil supply remains strong. The U.S. continues to lead production that is not originating from the Organization of Petroleum Exporting Countries or OPEC.
On Friday, energy industry services firm Baker Hughes observed that the number of U.S. rigs – considered a strong indicator of future production – had risen by three to 589 in the week to July 26.
It also marked the second consecutive weekly rise in the number of rigs, taking the U.S.’ uptick to its highest level since November 2022.
OPEC is itself set to unwind its production cuts later this year and forecasts of an oil market surplus either in Q4 2024 or Q1 2025 appear to be rising.
And the International Energy Agency (IEA) forecasts that global supply growth may be much stronger next year, with non-OPEC output growth, mainly in the U.S., Canada, Guyana and Brazil, leading gains for a third consecutive year by adding 1.5 million barrels per day (bpd) to the global supply pool.
Such sentiments are keeping Brent, considered the global proxy benchmark, in backwardation, i.e. a position wherein the current price is higher than prices trading in the futures market for later months.
The difference came in at over $3 per barrel on Monday, with the Brent April and May 2025 contracts trading at discounts of over $3 to the September contract. The West Texas intermediate is also showing similar levels of discount in a market that is at present not liking what it is seeing on the demand front. Afterall, oil isn’t just a story of demand.
