Futures Movers: Oil prices set to end streak of 7 straight weekly gains

Posted By: EN Todayon: August 18, 2023In:

U.S. oil futures edged higher Friday, but were on track to snap a run of seven straight weekly gains as worries about Chinese demand, rising bond yields and a stronger dollar take a toll.

Price action

West Texas Intermediate crude for September delivery
CL00,
-0.93%

CL.1,
-0.19%

CLU23,
-0.19%
inched up by 29 cents, or 0.4%, to $80.68 a barrel on the New York Mercantile Exchange, putting the U.S. benchmark on track for a weekly fall of 3%, FactSet data show.
October Brent crude
BRN00,
-0.32%

BRNV23,
-0.32%,
the global benchmark, shed 6 cents, or less than 0.1%, at $84.06 a barrel on ICE Futures Europe, down 3.2% for the week.
September gasoline
RBU23,
-1.11%
lost 0.9% to $2.798 a gallon and September heating oil
HOU23,
+0.09%
traded at $3.117 a gallon, up 0.7%.
September natural gas
NGU23,
-2.79%
fell by 2.1% to $2.566 per million British thermal units, eyeing a weekly loss of more than 7%.

Market drivers

Renewed worries about China’s property sector alongside a continued weak run of economic data from the world’s second-largest crude oil consumer has been blamed for oil’s pullback. WTI and Brent oil futures are likely to mark their first weekly losses since June.

See: Global investors expect China to deliver a massive fiscal stimulus. Here’s why it may never arrive.

Analysts have argued, however, that underneath the hood, China’s oil-consumption figures have held up.

The bear camp is “not pinning their hopes on a U.S. recession anymore but now betting on a collapse of the Chinese economy that, despite predictions of weaker demand, is still sucking down a lot of oil and diesel,” said Phil Flynn, senior market analyst at The Price Futures Group.

In a Friday note, Michael Tran, commodity strategist at RBC Capital Markets, said that “while Chinese macro data has underwhelmed over recent weeks, end-use refined product data looks far from terrible.”

“Chinese product inventories are tight and although diesel inventories have recently rebounded from the recent low, gasoline stocks have fallen for 13 consecutive weeks. Demand has been strong enough to keep product inventories subdued even with refinery utilization surging since exiting turnaround season in June,” he said.

China’s refinery run rate is clocking in at an annualized high of 14.9 million barrels a day, or mbd, an increase of 1.8 mbd year over year, Tran noted. Chinese refined product exports have remained relatively subdued, he said, with July flows tracking modestly higher on a monthly basis and softer gasoline exports offset by a moderate rise in gasoil and jet-fuel exports.

In the oil market, “if you’re a hedger, its best to worry about a price spike because if the Chinese fears level out and the focus switches back to the supply side, or lack thereof, it could get ugly very quickly,” said The Price Futures Group’s Flynn.

Meanwhile, U.S. Treasury yields have broken out to the upside, with the 10-year yield
BX:TMUBMUSD10Y
rising earlier this week above 4.25% to a 15-year high. The dollar has rallied alongside, with the ICE U.S. Dollar Index
DXY
up 0.6% this week and around 1.6% so far in August.

A stronger dollar can be a negative for commodities priced in the unit by making them more expensive to users of other currencies.