Oil prices drop to lowest in a month as US says Israel-Gaza ceasefire is imminent

Oil prices tumbled around 3 per cent on Friday to settle at their lowest levels in about a month, after US Secretary of State Antony Blinken said a ceasefire between Israel and the Palestinian group Hamas was imminent. Brent, the benchmark for two thirds of the world’s oil, shed 2.91 per cent to settle at $82.63 a barrel. West Texas Intermediate , the gauge that tracks US crude, was down by 3.25 per cent to $80.13 a barrel. For the week, Brent lost 2.62 per cent, while WTI declined 2.17 per cent. Mr Blinken told the Aspen Security Forum in Colorado on Friday that a ceasefire between Israel and Hamas-led groups in Gaza, which have been at war since October 7, was drawing near. "There’s a lot going on and the Middle East is front and centre," he said. "I believe we’re inside the 10-yard line and driving toward the goal line in getting an agreement that would produce a ceasefire, get the hostages home and put us on a better track to trying to build lasting peace and stability," he added, using an American football analogy. "But there remain some issues that need to be resolved, that need to be negotiated. We’re in the midst of doing exactly that." Before his comments, the oil market was already being weighed down by weak investor sentiment, a stronger dollar and concerns on economic signals, particularly from China, the world's second-largest economy. Beijing reported that gross domestic product grew at a slower than expected pace of 4.7 per cent in the second quarter of 2024, sparking worries about oil demand in the country, the world's second-biggest consumer of crude. China's economic slowdown “nullified market expectations of increased Chinese demand”, said Rania Gule, an market analyst at XS.com. “After spending most of 2024 anticipating a rise in Chinese demand for crude oil, markets are now pricing in fears that limited Chinese growth won't provide sufficient demand to offset the surplus in global markets.” Opec, the group led by the world's biggest oil producer, Saudi Arabia, expects the Chinese economy to rise by 4.9 per cent in 2024, slightly up from a previous forecast, while keeping its 4.6 per cent growth projection in 2025, it said in its July monthly report last week. The Vienna-based organisation also revised its 2024 global economic growth forecast slightly upwards to 2.9 per cent but kept it unchanged at 2.9 per cent for 2025. Opec kept its global oil demand growth steady at 2.2 million barrels per day as it expects “robust growth” of 1.8 million bpd on an annual basis from mid-2025, also unchanged from June's assessment. The oil producers' bloc also noted that US Federal Reserve's policy decisions tend to have the “most direct impact” as trade is primarily dollar-denominated. The Fed is expected to lower interest rates in September, after a record run of rises. “The Fed's current cautious approach presents a key challenge for the global oil market on two major fronts – the oil supply side and the strength of the US dollar,” it said in its July report. “The Fed's stance to defer a rate cut could potentially constrain the abilities of other major economies to reduce their policy rates further, thus subjecting their economies to inflationary pressures as they aim to avoid weakening their currencies relative to the dollar.” On the other hand, the US Energy Information Administration expects global crude demand to exceed supply next year as Opec+, the alliance that includes other oil-exporting countries led by Russia, extends some of its deep production cuts into 2025, it said in its Short-Term Energy Outlook last week. The statistical arm of the US Department of Energy raised its forecast for global oil consumption for next year to 104.7 million bpd, from an earlier estimate of 104.5 million bpd. Crude production worldwide is now projected to reach 104.6 million bpd, down from a previous forecast of 104.7 million bpd, the agency said. Global oil stocks, or the total inventory of oil stored worldwide, will drop by 700,000 bpd in the second half of 2024 after a decrease of 500,000 bpd in the first half, the EIA said. Last month, Opec+ agreed to extend output cuts of 3.66 million bpd, which were initially planned to end this year, until the end of 2025. At the same time, an additional 2.2 million bpd in voluntary production cuts by eight Opec+ member states was extended by three months until the end of September. The group also released a plan for gradually unwinding the voluntary curbs on a monthly basis from October 2024 until September 2025, but said “the monthly increases can be paused or reversed subject to market conditions”.

Oil prices drop to lowest in a month as US says Israel-Gaza ceasefire is imminent

Weak investor sentiment, stronger dollar and China's economic slowdown have also weighed on the crude market