On Friday, oil futures closed down, bringing U.S. benchmark prices down for the week. This was because worries about demand stayed high and pushed back fears of an Iranian attack on Israel in response.
The price changes
- For September delivery, West Texas Intermediate crude CL00 fell by 0.91% and CL.1 fell by 0.99%. After going as low as $75.54, CLU24 -0.99% fell by $1.51, or 1.9%, to settle at $76.65 a barrel. Dow Jones Market Data says that prices based on the front month went down almost 0.3% for the week.
- October Brent crude BRN00 -0.84% The global benchmark, BRNV24 -0.84%, fell $1.36, or 1.7%, to $79.68 a barrel, but it ended the day 2 cents higher than it did last Friday.
- September petrol (RBU24-0.51%) fell 2% to $2.31 a gallon, a loss of almost 3.4% for the week. September heating oil (HOU24-0.94%) also fell 2.1% to $2.33 a gallon, a loss of 0.5% for the week.
- The price of natural gas for September delivery NGU24 -0.05% settled at $2.12 per million British thermal units, down 3.4% on Friday and 0.9% for the week.
Market forces
U.S. oil futures hit a new low for the week as Chinese data showed falling imports and refinery input demand. Tyler Richey, co-editor at Sevens Report Research, told MarketWatch that this suggests that the Chinese economy will continue to slow down, which will hurt demand around the world. Reports say that in July, refinery runs dropped 6.1% year over year in China.
That came after a negative report from the International Energy Agency on Thursday, which said there would likely be a surplus in the physical market in the coming quarters, and a “lacklustre” report from the Energy Information Administration on Wednesday, which showed a surprise rise in crude stockpiles, as Richey pointed out.
Last week, oil futures went up along with the rise in U.S. stocks. This week, they got some help from U.S. inflation falling even more and strong retail sales, which made people more likely to think that the Federal Reserve will start cutting interest rates at their policy meeting next month.
Richey said that early gains this week were driven by geopolitics because of rising tensions between Israel and Iran.
After the killing of a top Hamas official in Tehran at the end of last month, Iran has threatened to attack Israel in response, which supports crude. The U.S. has sent military assets to the area and put diplomatic pressure on both countries to try to keep direct fighting between them from starting up again.
“Gaza cease-fire talks are under way, which is good news on the geopolitical front,” said Stephen Innes, managing partner at SPI Asset Management.
In terms of the future, Richey said, “geopolitical tensions remain an influence on the market… with a mild fear bid remaining in place.” It’s becoming clearer, though, that “recession fears” are a bigger issue for the market now that the summer driving season is almost over. Any price increases caused by news from the Middle East are likely to be limited in the low $80s.
With oil prices as they are now, Richey said, a soft economic landing is “continuing to be priced in.” But if a hard landing becomes more likely in the coming weeks or months, he said, oil prices will fall, and WTI moving towards the low to mid-$60s is “not only possible, but likely.”
Natural gas use has gone up because of predictions of hotter weather in the second half of August. This is “especially pronounced in the U.S.”, Innes told MarketWatch.
“To add fuel to the fire, natural gas production has gone down a little, making the market less balanced just as demand is rising,” he said.
But once the temperature drops, “the rise in demand for cooling—and, by extension, natural gas—could slow down, which could end the rally,” Innes said. Petrol prices have gone up 4.3% so far this month.
