The oil market is experiencing high volatility.
Weekly analysis of the oil market
The oil market is experiencing high volatility due to geopolitical risks and economic slowdowns, with global Brent crude closing at a lower rate of $79 per barrel.
The price of Brent crude dropped to $78.5 per barrel at the start of last week due to indicators pointing to weaker-than-expected macroeconomic forecasts, signaling a global economic slowdown. However, prices surged to nearly $82 per barrel on Wednesday amid heightened tensions in the Middle East following strikes attributed to Israel against Hamas and Hezbollah leaders. Futures prices were also buoyed by comments from Federal Reserve Governor Jerome Powell, who hinted at a possible interest rate cut in September. Despite these factors that typically boost prices, they closed significantly lower on Friday as concerns over the global economy took precedence over geopolitical tensions.
The announcement of retaliation by Hezbollah, Hamas, and Iran against Israel could increase the geopolitical risk premium of crude oil. However, many analysts believe that Iran's response will likely not exceed certain limits, similar to last April's response. They primarily expect an escalation in attacks by Houthi rebels on merchant ships and oil tankers in the Red Sea, which could once again severely disrupt global shipping.
On average, Brent ICE futures for October delivery decreased by $2.6 per barrel (-3.2%) to $79.1 per barrel over the week. In a similar trend, WTI prices dropped by $2.3 per barrel (-2.9%) to $75.7 per barrel. According to a Bloomberg poll of economists on July 31, the consensus is that the price of Brent crude oil will stabilize and is anticipated to reach $85 per barrel in the third and fourth quarters.
Rising unemployment in the US is leading to a downturn in global stock and commodity markets.
The Federal Reserve's hint at a potential rate cut in September was initially met with market approval last week but was soon deemed inadequate and belated. Numerous prominent companies reported disappointing earnings for the quarter, and the U.S. job figures, along with rising unemployment rates, are causing concern. The recent report indicating the unemployment rate has risen to 4.3% has sparked widespread commentary. The weak employment data has reignited fears of a recession in the United States, as per the Sahm rule—a statistical measure that uses the unemployment rate to predict recessions accurately—thus casting doubt on the Federal Reserve's measures. Amidst these concerns, both the S&P 500 and the Dow Jones indices experienced a 2.1% decline. The movement of liquidation of shares has also spread around the world. The Stoxx 600 index ended the week down 2.9%, the highest biggest drop in more than a year. In Asia, all stock markets were also in the red with a 4.7% decline in the Nikkei index and 0.5% of Hong Kong's Hang Seng Index.
In the commodity market, a turnaround is taking place. The Bloomberg Commodity Index, tracking a diverse range of energy, agricultural commodities, and metals futures, has decreased by 4%, reaching its lowest point since 2021.
PMI Report: Global Economy Deterioration
The latest S&P Global report indicates that the global manufacturing index dropped to 49.7 in July from 50.8 in June, marking the first economic downturn in seven months. Every region worldwide recorded a manufacturing PMI below 50, with the eurozone experiencing the most substantial decline. Decreased manufacturing output in Germany, France, and Italy contributed to the eurozone's output decline, the steepest in seven months, as reported by S&P Global.
OPEC+ is maintaining the anticipated supply increase for the fourth quarter at present.
The OPEC+ Joint Ministerial Monitoring Committee (JMMC), which convened last week, made no changes to the group's production policy. Consequently, the projected gradual increase in oil production from the fourth quarter will continue for now. The actual implementation of this decision hinges on market conditions. Given the 12% fall in oil prices since early July, driven by demand worries, OPEC+ may need to reconsider its oil supply policy.
USA: Crude inventories decline, bolstered by exports.
Last week, commercial crude oil inventories decreased by 3.4 million barrels, compared to the consensus of a 1.1 million barrel drop and a 5-year average decrease of 7.2 million barrels. This marks the fifth consecutive week of declines, with inventories now 2% below last year's levels and 4% below the 5-year average. The decline was bolstered by a rise in crude oil exports of 733 thousand barrels per day and a reduction in refinery utilization to 90%. Domestic crude oil production remained constant at 13.3 million barrels per day. Regarding refined products, gasoline inventories fell by 3.7 million barrels due to reduced production, especially in PADD 3 following refinery shutdowns, while distillate and jet fuel inventories rose by 1.5 million barrels and 0.3 million barrels, respectively, attributed to lower net exports.
In Europe, stocks and prices of petroleum products have declined.
At the Amsterdam-Rotterdam-Antwerp (ARA) hub, inventories fell by 1%, primarily due to a 6% decrease in kerosene stocks. Market prices have followed suit, with gasoline prices falling by 1% and diesel prices by 2.6%, in response to lower crude oil prices. The European refining margin now stands at $8.3 per barrel, surpassing the five-year average of $7.0 per barrel.
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