Oil Prices Decline Amid Global Supply Stability

By Arathy Somasekhar

HOUSTON (Reuters) – Oil prices settled more than $1 lower on Thursday as global supply appeared largely unaffected by concerns over a wider Middle East crisis following the killing of a Hamas leader in Iran, leading investors to refocus on demand concerns.

Global benchmark Brent crude futures closed $1.32, or 1.6%, lower at $79.52 a barrel, while U.S. West Texas Intermediate crude fell $1.60, or 2.1%, to $76.31.

In the previous session, both benchmarks had jumped about 4% due to fears of an expanded conflict in the Middle East, spurred by the killing of Hamas leader Ismail Haniyeh in Tehran, shortly after the death of Hezbollah’s military commander in Beirut.

Dennis Kissler, senior vice president of trading at BOK Financial, noted, “I think there is a growing realization that we haven’t seen any real supply disruption. The market is refocusing itself away from geopolitical issues and looking at global demand for crude.”

Despite this, analysts warned that investors remained cautious about potential disruptions, especially to oil shipping lanes. Iranian-aligned Houthi militants have attacked ships in the Red Sea, prompting tankers to seek longer alternative routes.

A meeting of top OPEC+ ministers maintained oil output policies unchanged, including plans to gradually unwind output cuts starting in October. As per OPEC+’s June agreement, some members will start to phase out cuts of 2.2 million barrels per day from October 2024 to September 2025 while extending earlier cuts of 3.66 million bpd until the end of 2025.

U.S. government data released Wednesday indicated that strong export demand resulted in a weekly decline of crude oil stockpiles by 3.4 million barrels, supporting prices.

In the long term, however, uncertainty regarding Chinese demand remains. Phillip Nova analyst Priyanka Sachdeva mentioned that this concern would limit oil prices’ upside. A private sector survey released Thursday showed a decline in China’s manufacturing activity for the first time in nine months, coinciding with official data showing a slip to a five-month low in manufacturing activity for July.

Additionally, the Bank of England reduced interest rates from a 16-year high on Thursday, while Federal Reserve Chair Jerome Powell indicated that U.S. interest rates could be cut as early as September. Lower interest rates reduce borrowing costs, potentially boosting economic activity and oil demand.