Crude oil extends losses on China demand concerns, Gaza ceasefire hopes (NYSEARCA:USO)

Crude oil futures settled lower on Friday to extend losses for the week, with weighed by worries about demand from signs of a weakening Chinese economy and expectations of a Gaza ceasefire deal that would ease global supply concerns.

Data released last week showing China’s total fuel oil imports fell 11% in H1 has heightened concerns about the wider demand outlook in the world’s largest crude oil importer.

“The Chinese demand situation is going down the tubes here and crude oil prices are going down with it,” Mizuho’s Bob Yawger said according to Reuters, adding he believes the China economy is threatening to enter a deflationary cycle, where prices will fall because of falling demand, “and that is about the worst possible scenario for a country that is the largest importer of crude oil on the planet.”

Meanwhile, demand from the U.S. is expected to ease as domestic refiners are preparing to cut back production as the end of the summer driving season in early September nears; Valero Energy (VLO) said this week its 14 refineries would run at 92% of combined capacity in Q3, compared to 94% in Q2.

Without strong Chinese demand, and with “no expectations of stronger demand elsewhere, the balance looks likely to worsen in coming months,” Michael Lynch, president at Strategic Energy & Economic Research, told MarketWatch, adding that “market psychology is definitely bearish.”

Hopes that Israel and Hamas will soon strike a deal for a ceasefire in Gaza gathered momentum again this week, weighing on crude prices.

The market also is looking to OPEC’s August 1 monitoring committee meeting, although no changes are expected in the start of group’s planned unwinding of some voluntary production cuts after September, subject to market conditions.

Crude oil lost ground for the third consecutive week, with front-month Mymex crude (CL1:COM) for September delivery closing the week -1.8% to $77.16/bbl, including Friday’s 1.4% decline, and front-month September Brent crude (CO1:COM) settling -1.8% on the week to $81.13/bbl, including a 1.5% drop on Friday.

Also, front-month Nymex August natural gas (NG1:COM) finished the week -5.7% to $2.006/MMBtu, including a 1.7% drop on Friday.

ETFs: (NYSEARCA:USO), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (NRGU), (USOI), (UNG), (BOIL), (KOLD), (UNL), (FCG)

A Donald Trump presidency could be net bearish for oil prices due to a combination of factors including tariffs and oil-friendly policies, and pushing OPEC+ to release more oil into the market, Citi said this week in a research report.

While Trump has a friendlier agenda for domestic oil and gas than a Kamala Harris administration, Citi said it would take 12-18 months for policy changes such as easing regulatory constraints to have a noticeable effect on domestic supply growth.

“Trump could roll back environmental policies, though broadly overturning the [Inflation Reduction Act] looks unlikely due to its positive impacts in red states,” Citi wrote, referring to states that are Republican leaning.

Energy (XLE), as represented by the Energy Select Sector SPDR Fund ETF, fell less than 0.1% this week.

Top 5 gainers in energy and natural resources in the past 5 days: Perma-Fix Environmental Services (PESI) +28%, Nabors Industries (NBR) +23.9%, RPC Inc. (RES) +17.5%, Mammoth Energy Services (TUSK) +15.3%, Oceaneering International (OII) +14.9%.

Top 5 decliners in energy and natural resources in the past 5 days: New Fortress Energy (NFE) -21.2%, Nano Nuclear Energy (NNE) -16.7%, Atlas Lithium (ATLX) -11.6%, Ship Finance International (SFL) -11.2%, Weatherford International (WFRD) -10.2%.

Source: Barchart.com