Oil sits 2% lower after China data fuels demand concerns

Global crude oil prices dropped nearly 2% in the previous session, with Brent crude falling below $80 a barrel as investors adjusted their expectations for demand growth from China, the world's top oil importer. Crude oil prices showed little movement over the week following Wall Street's increased bets on a potential interest rate cut by the US Federal Reserve.

Brent crude futures fell by $1.36, or 1.7%, closing at $79.68 per barrel. US West Texas Intermediate (WTI) crude futures dropped $1.51, or 1.9%, to settle at $76.65 per barrel. The previous week, Brent crude ended at $79.66, and WTI closed at $76.84. In domestic markets, crude oil futures on the Multi-Commodity Exchange (MCX) settled 0.6% lower at ₹6,448 per barrel.

"Prices seem to find some headwinds from geopolitical developments in the Middle East and China's demand outlook," said Yeap Jun Rong, market strategist at IG, referring to weak Chinese economic data, which cast doubts on the country's oil demand prospects.

Weak Chinese oil demand

On Monday, the Organization of the Petroleum Exporting Countries (OPEC) reduced its forecast for oil demand growth this year, attributing the revision to softness in China. The International Energy Agency (IEA) followed suit on Tuesday, cutting its 2025 forecasts due to weak demand in China.

Weak Chinese demand indicators continued to drag oil prices down on Monday, with the U.S. benchmark poised to lose nearly 3% and Brent crude not far behind.

The markets have now fully absorbed the economic data from China released last week. Notably, home prices are declining at their fastest rate in nine years, and refinery processing rates were sharply reduced in July due to weak fuel demand. Recent sentiment indicates a growing acknowledgment that China's economic recovery will be slower than initially expected.

Middle East ceasefire talks

Oil prices have fallen close to their lowest level this year amid growing hopes about a ceasefire proposal in Gaza that could ease tensions in the Middle East.

On Tuesday, oil prices dipped slightly after Israel agreed to a proposal aimed at resolving disagreements that had been hindering a ceasefire agreement in Gaza. This development alleviated worries about potential supply disruptions in the Middle East.

For months, the US, Qatar, and Egypt have been trying to reach an agreement between Israel and Hamas to ensure a prisoner exchange and cease-fire and allow humanitarian aid to enter Gaza. US Secretary of State Antony Blinken arrived in Israel on Sunday evening to advance efforts to reach a Gaza cease-fire and prisoner swap deal with Hamas. US President Joe Biden said Sunday he believes that a cease-fire in the Gaza Strip is 'still possible.' The talks are 'still underway. We're not giving up. (It’s) still possible,' Biden told reporters.

Crude oil forecast: bearish trends continue

The persistent concerns about China’s economic slowdown, alongside geopolitical tensions, suggest a cautious outlook for both natural gas and oil, with potential downside pressure on prices.

The forecast for crude oil through the rest of 2024 looks increasingly negative, in line with OPEC predictions. Contributing to this bearish outlook are the potential ceasefire in Gaza, U.S. presidential candidates' pledges to lower oil prices, stable Chinese loan prime rates despite weakening economic indicators, and the conclusion of a six-week period of falling inventory levels.

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