WTI languishes near $75 on soft global demand outlook

Source Fxstreet
  • The Oil price hovers near a seven-week low of around $75.00 as the global economic outlook appears to be dismal.
  • German economy surprisingly contracted by 0.1% in the second quarter of this year.
  • Investors await the Fed’s policy meeting and Caixin Manufacturing PMI for July.

West Texas Intermediate (WTI), futures on NYMEX, trade close to seven-week low near $75.00 in Tuesday’s European session. The Oil price continues to remain in the bearish trajectory amid growing worries over global demand outlook.

Investors remain concerned over China’s economic outlook due to vulnerable demand in domestic and overseas markets. China’s economic woes were prompted by slower-than-expected Q2 Gross Domestic Product (GDP) growth and an unexpected rate-cut decision by the People’s Bank of China (PBoC). Also, the absence of a booster dose in China’s Third Plenum deepened uncertainty over its economic revival. China is the world’s largest Oil importer and its economic vulnerability is unfavorable for the Oil price.

To address the dismal outlook, China’s Politburo, the country’s top leadership, has laid out economic priorities for the second half of this year.

Apart from China, investors lack confidence of upbeat OIL demand from the Eurozone and the United States (US) economy. World’s oldest continent is going through a rough phase amid weakness in the German economy. Flash Q2 GDP report showed that the Eurozone economy grew steadily by 0.3%. However, the German economy surprisingly contracted by 0.1%. This would leave the economic outlook as uncertain.

Also, investors worry that the US growth rate could be slower in the second-half of this year amid presidential elections.

In the near-term, the major triggers for the Oil price will be the Federal Reserve’s (Fed) monetary policy announcement on Wednesday and the Caixin Manufacturing PMI for July, which will be published on Thursday. The Fed is expected to keep interest rates unchanged in the range of 5.25%-5.50% but will likely deliver a dovish guidance on interest rates.

Brent Crude Oil FAQs

Brent Crude Oil is a type of Crude Oil found in the North Sea that is used as a benchmark for international Oil prices. It is considered ‘light’ and ‘sweet’ because of its high gravity and low sulfur content, making it easier to refine into gasoline and other high-value products. Brent Crude Oil serves as a reference price for approximately two-thirds of the world's internationally traded Oil supplies. Its popularity rests on its availability and stability: the North Sea region has well-established infrastructure for Oil production and transportation, ensuring a reliable and consistent supply.

Like all assets supply and demand are the key drivers of Brent Crude Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of Brent Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.

The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of Brent Crude Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.

OPEC (Organization of the Petroleum Exporting Countries) is a group of 13 Oil producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact Brent Crude Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.

 

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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