Market Analysis

Oil costs take a breather following days of losses

Amos Simanungkalit · 21 Aug15.9K Views

Oil prices remained relatively stable on Wednesday following a series of declines that have brought Brent crude down to nearly $77, influenced by persistent concerns about Chinese demand and reduced fears of escalating conflict in the Middle East.

Brent crude futures were steady at $77.20 per barrel by 0806 GMT, while U.S. West Texas Intermediate crude traded at $73.10, a decrease of 7 cents.

Brent crude, which had peaked above $82 last Monday, had dropped 6.2% by Tuesday’s close, reaching a two-week low of $77.20. In the same timeframe, WTI had fallen 7.5%.

The decline in prices was driven by ongoing worries about demand from China, the world’s largest crude importer, and the diminishing concern over the potential spread of Middle Eastern conflicts affecting crude supply.

Reports indicated a rise in U.S. crude oil stocks last week, according to figures from the American Petroleum Institute. However, gasoline and distillate stocks saw a decrease.

As the world's leading oil producer and consumer, the increase in U.S. inventories suggests an oversupply situation, which could exert downward pressure on prices.

The official U.S. government inventory data is scheduled for release on Wednesday at 10:30 a.m. (1430 GMT).

In the Middle East, U.S. Secretary of State Antony Blinken concluded a visit aimed at negotiating a ceasefire agreement in Gaza. Blinken, along with mediators from Egypt and Qatar, has raised hopes for a U.S. "bridging proposal" to reconcile differences in the ongoing conflict between Israel and Hamas.

According to ING commodities strategists, "Hopes for a ceasefire between Israel and Hamas, coupled with lingering demand concerns, have impacted oil prices. The weaker Chinese demand has been widely reported, and global refinery margins have been under strain throughout August, indicating that these concerns extend beyond just China."

China's economic difficulties continue to affect the market, with weak processing margins and reduced fuel demand impacting both state-run and independent refineries.

Additionally, crude oil imports from Russia, China's top supplier, decreased by 7.4% in July compared to the previous year, and fuel oil imports fell for the third consecutive month, according to recent customs data.