Oil prices declined as worries about Chinese demand and uncertainty surrounding the timing of Federal Reserve interest rate cuts outweighed the positive news of another decrease in US inventories. Brent crude dropped towards $84 per barrel, extending its decline for the fourth consecutive session, while West Texas Intermediate approached $81. In China, the world’s largest oil importer, recent data indicated ongoing economic challenges, including deflationary pressures and reduced appetite for crude from refiners. The American Petroleum Institute reported a decrease of 1.92 million barrels in crude stockpiles last week, with a drawdown also observed at the important Cushing, Oklahoma hub. The total stockpiles had already decreased by more than 12 million barrels the previous week.
Oil prices have remained strong throughout the year, thanks to OPEC+ supply cuts and anticipation of looser monetary policy in the US. Federal Reserve Chairman Jerome Powell expressed caution about the labor market, but stated that more evidence of slowing inflation is needed before considering a reduction in borrowing costs.
Warren Patterson, head of commodities strategy for ING Groep NV, noted concerns about Chinese oil demand and the impact of weaker-than-expected inflation data. However, these concerns did not significantly affect market expectations for a rate cut in September.
The recent lackluster trading in crude oil has resulted in decreased volatility. Brent’s implied volatility, which predicts likely movements in oil futures based on options pricing, is currently at its lowest level in approximately six years.
On Wednesday, traders will carefully examine the monthly report from the Organization of the Petroleum Exporting Countries (OPEC) to gain insights into the global market outlook. The International Energy Agency (IEA) will also provide its perspective on the matter a day later.