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Despite the ongoing hostilities in the Middle East, including repeated attacks between Israel and Hezbollah and terrorist actions against ships in Yemen, the oil market remains largely indifferent. Crude oil prices have been resistant to rising, even amid these geopolitical tensions. Brent and WTI crude are both heading towards their biggest monthly losses since 2023, currently down by around 8 percent in July.
Recent data from the American Petroleum Institute (API) revealed a decline in US crude oil inventories by 4.49 million barrels for the week ending July 26, following a previous week's decline of 3.9 million barrels. Yet, even with these inventory drops, traders are increasingly building up short positions in crude oil while scaling back their long positions in gasoline—a key driver of oil demand growth. Gasoline long positions have now reached their lowest level in four years.
Economic data from China has further rattled the oil market. China's manufacturing activity slipped to a five-month low in July, with the Purchasing Managers' Index (PMI) falling to 49.4, marking the third consecutive month of contraction. Factory gate prices have reached their worst level in 13 months, and employment remains in negative territory.
As the world's largest importer of crude oil and the second-largest consumer after the US, China's weakening demand is a critical factor in the current oil price decline. In the first half of 2024, China's crude oil imports fell by 11 percent, and the outlook for the second half of the year remains subdued, leading analysts at Citigroup Inc to lower their growth forecasts for the country.
Another potential influence on oil prices is the outcome of the upcoming US Federal Reserve meeting. While the Fed is expected to hold interest rates steady, markets will closely watch for any signals from Chair Jerome Powell that could indicate future monetary policy direction.
The next significant event for the oil market is the meeting of the OPEC+ oil cartel. Although expectations were initially low, the recent price declines have led some analysts to anticipate further production cuts or an extension of existing ones. However, even if OPEC+ takes action, the broader sentiment in the oil market remains negative, largely due to concerns over China's slowing economic growth.
In the end, while geopolitical conflicts and interest rate adjustments may cause short-term fluctuations, the medium-term trajectory of oil prices will be heavily influenced by China's economic performance. As the world's largest importer, China's demand, or lack thereof, is likely to be the decisive factor for oil prices, moving forward.
Investing insights from our research team CSB Bank Q1 FY25 – Soft quarter, but guidance encouraging
Sumitomo Chemical India: Does the stock present an opportunity after the strong run-up?
Intellect Design Arena: Quarterly show weak, but investment case strong
Dixon Technologies: Blowout earnings with expanding coverage
Navin Fluorine: Lacklustre Q1FY25; growth capex on track
ideaForge Technology: Stock re-rating hinges on sustainable and predictable earnings
Tata Consumer: Acquisition cost weighs on profitability
What else are we reading?
SEBI curbs combined with tax increases will take the wind out of the derivative market
Decoding Economics | Stock picking is alive and well
What the inflation targeting framework missed
Growing remittances an excellent example of India’s demographic dividend
SC judgement allowing states to tax mineral rights poses risk to industry
Chart of the Day| Why Sovereign Gold Bonds may die a silent death
Opinion | On technology, RBI must send a more nuanced message to banking industry
It pays to be a lazy investor — but for how long? (republished from the FT)
Rahul Gandhi scores on performance but questions on substance remain unanswered
Who pays for defence? Myth and reality of military aid in international relations
Will investors get good AI news this week? Don’t bet on
Personal Finance
Coming soon: Mutual funds to be governed by SEBI’s insider trading norms. Here’s what it means
Tech and Startups
See green shoots in IT hiring, GCCs make up 70% of mandate: Quess Corp CEO
Markets
Size does matter: Large fund houses lead the way in NFO launches
Technical Picks: IOC, Bharat Heavy Electricals, Chambal Fertilizers and GRSE (These are published every trading day before markets open and can be read on the app).
Shishir Asthana
Moneycontrol Pro
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