Oil prices at lowest since January on prospects for a demand slowdown

By Myra P. Saefong and William Watts

EIA posts drop in weekly U.S. crude, gasoline and distillate stockpiles

Oil futures declined Wednesday, as a downward revision to U.S. employment growth fed prospects for a slowdown in oil demand, pulling prices to their lowest settlement since January.

Prices for oil shook off the session's early gains, which had been attributed to declines in U.S. crude and product inventories and a weekly rise in implied demand for gasoline.

Price moves

West Texas Intermediate crude CL00 for October delivery CL.1 CLV24 declined by $1.24, or 1.7%, to settle at $71.93 a barrel on the New York Mercantile Exchange. That was the lowest front-month finish since Jan. 10, according to Dow Jones Market Data.October Brent crude BRN00 BRNV24, the global benchmark, shed $1.15, or 1.5%, to $76.05 a barrel on ICE Futures Europe, settling at its lowest since Jan. 2. September gasoline RBU24 shed 2.3% to $2.21 a gallon, while September heating oil HOU24 fell 0.6% to $2.25 a gallon.Natural gas for September delivery NGU24 settled at $2.18 per million British thermal units, down 1%.

Price drivers

The revision to U.S. nonfarm payrolls was "just more fuel for the growing concerns of global economies struggling later in the year," Gary Cunningham, director of market research at Tradition Energy, told MarketWatch.

The U.S. added 818,000 fewer jobs than previously reported from the spring of 2023 to the spring of 2024. The government's revised estimate of employment growth showed the economy gained about 2.1 million jobs from April 2023 to March 2024, compared with the previously reported 2.9 million increase.

"We already have growing concerns that the Chinese economy is going to cool with the weather and pull significant demand out of the global petroleum market, and much of Europe is in question," said Cunningham. "So the U.S. data just added to the list."

There is also a "softening of geopolitical concerns as the conflict in the Middle East seems to be backing down from a rapid escalation," he said.

Claims by the Biden administration that an end to the conflict between Israel and Hamas is in the making before the end of the year "brought some selling, but time will tell if it is true," said Cunningham.

Overall, oil prices have pulled back sharply from their Aug. 12 closing highs, which saw WTI finish back above $80 a barrel on jitters over a potential retaliatory strike by Iran on Israel following the late July assassination of a top Hamas official in Tehran. Crude has since retreated on rising hopes of an Israel-Hamas ceasefire in Gaza, while worries about the global demand outlook have also weighed on prices.

The U.S. has laid out a "bridging proposal" aimed at closing gaps between Israel and Hamas. While negotiations have yet to produce a breakthrough, the talks appear to have kept a strike by Iran and its proxies at bay. Biden administration officials have said Iran doesn't want to interfere with the talks, in part because a ceasefire would help clear the way for the U.S. to reduce its military footprint in the Middle East, which is a priority for Tehran, the Wall Street Journal reported.

Traders fear a direct Israel-Iran conflict could pose a threat to crude flows from the Middle East.

Crude has been "shaking off conflict premium due to some limited success by the United States in bringing Israel to the Gaza cease-fire table. Yet the bridging deal is still seen as one-sided by Hamas and while Israel reserves the right to attack after hostages are released, it is very premature to think that the conflict is in the first steps to resolution," John Evans, analyst at PVM, part of TP ICAP, said in a note.

Still, Cunningham said Wednesday's decline in crude prices is a surprise "given the losses the dollar has seen against the euro."

"It now appears the bears are in [charge]," and prices for WTI could test $70 by the end of the week, he said.

Supply data

Oil prices had found some support early Wednesday from the "bullish-tilted" U.S. petroleum-supply report, "although ultimately markets remain at the mercy of geopolitics," Matt Smith, head analyst, U.S., at Kpler, said in emailed commentary.

Oil futures moved decidedly higher after the Energy Information Administration reported Wednesday morning that U.S. commercial-crude inventories declined by 4.6 million barrels for the week ending Aug. 16.

On average, analysts had forecast a crude-supply decrease of 3 million barrels, according to a survey conducted by S&P Global Commodity Insights. Late Tuesday, the American Petroleum Institute reported a crude-inventory climb of 347,000 barrels, according to a source citing the data.

A "tick higher" in both refinery runs and exports encouraged a draw to crude inventories, while buoyant implied demand for gasoline and distillates helped to "round out a trio of draws as we fast approach the finale of summer driving season," said Smith.

The EIA report showed weekly supply losses of 1.6 million barrels for gasoline and 3.3 million barrels for distillates. The survey had shown analyst forecasts for a decline of 1.5 million barrels for gasoline and an increase of 300,000 barrels for distillates.

Demand for gasoline, meanwhile, inched higher, with total motor gasoline supplied, a proxy for demand, at 9.193 million barrels per day in the latest week, up from 9.045 million barrels per day a week earlier.

U.S. oil production climbed by 100,000 barrels to 13.4 million barrels per day in the latest week, the EIA said, while crude stocks at the Cushing, Okla., Nymex delivery hub fell by 600,000 barrels to 28.2 million barrels.

-Myra P. Saefong -William Watts

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08-21-24 1527ET

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