On Friday, oil futures experienced a notable decline, pulling U.S. benchmark prices lower for the week. West Texas Intermediate (WTI) crude for September delivery fell by $1.51, or 1.9%, settling at $76.65 per barrel. This drop reflects a nearly 0.3% decrease for the week, as traders grappled with persistent worries about global oil demand that overshadowed geopolitical concerns, such as the potential for retaliatory strikes by Iran against Israel. October Brent crude, the global oil benchmark, also saw a decrease, losing $1.36, or 1.7%, to close at $79.68 per barrel. Despite this drop, Brent ended 2 cents higher than its settlement from the previous Friday.
In the gasoline and heating oil markets, September futures followed a similar downward trajectory. Gasoline prices fell by 2% to $2.31 per gallon, culminating in a weekly loss of approximately 3.4%. Heating oil futures for September declined by 2.1%, closing at $2.33 per gallon, which resulted in a slight 0.5% drop for the week. Natural gas futures for September delivery settled at $2.12 per million British thermal units, marking a 3.4% decrease on Friday and a weekly loss of 0.9%.
The decline in oil prices was driven by a series of factors that weighed heavily on market sentiment. Data from China revealed a significant drop in refinery runs, falling 6.1% year-over-year in July, which raised concerns about a slowdown in global oil demand. This bearish outlook was compounded by a negative report from the International Energy Agency (IEA), which indicated the possibility of a surplus in the physical oil market in the upcoming quarters. Additionally, the U.S. Energy Information Administration (EIA) reported a surprising increase in crude stockpiles, further pressuring oil prices.
Earlier in the week, oil futures had shown some resilience, driven by a rebound in U.S. equities and optimistic retail sales data that bolstered expectations for Federal Reserve rate cuts. However, this support proved insufficient to counterbalance the growing demand concerns. Geopolitical tensions between Israel and Iran had provided temporary support for oil prices, with Iran threatening retaliatory actions following the assassination of a top Hamas official in Tehran. The U.S. responded by deploying military assets to the region and applying diplomatic pressure to prevent escalation. Nonetheless, the geopolitical support was not enough to sustain oil prices amid mounting economic concerns.
Looking ahead, market analysts are cautious about the potential for further declines in oil prices. Tyler Richey, co-editor at Sevens Report Research, noted that while geopolitical tensions could continue to influence the market, recession fears are likely to become a more significant factor as the summer driving season concludes. Richey suggested that any rallies driven by Middle Eastern headlines might be limited to the low $80s, with the potential for WTI prices to fall to the low to mid-$60s if economic conditions worsen.
In contrast, natural gas prices have seen an uptick due to increased demand for cooling as hotter weather is expected in the latter half of August. This surge in demand has been exacerbated by a slight drop in natural gas production, tightening the market balance. Despite the current increase, Stephen Innes, managing partner at SPI Asset Management, pointed out that once temperatures begin to cool, the demand for natural gas might diminish, potentially capping the recent rally. Natural gas prices have climbed 4.3% so far this month, reflecting the heightened demand.
Overall, the oil market is navigating a complex landscape shaped by a combination of weak economic signals, potential surpluses, and geopolitical uncertainties, while natural gas prices are influenced by current high demand and production constraints.