Oil prices fell on Tuesday, reaching their weakest levels since mid-June. This was driven by expectations of a supply surplus and uncertainty over demand, which continued to weigh on market sentiment.
Tepid support from China’s rate cut
A surprise interest rate cut by China, a top oil importer, offered little support to the markets. Analysts said the cut was too small to significantly improve sentiment towards the Chinese economy.
Current price levels
Brent oil futures expiring in September fell 0.2 percent to $82.26 a barrel, while West Texas Intermediate crude futures fell 0.2 percent to $77.20 a barrel by 20:58 ET (00:58 GMT).
Shifting supply, demand dynamics
Morgan Stanley analysts warned that the oil market is likely to shift into a surplus by 2025, with prices expected to fall within the mid-to-high $70s range. They said the market was currently experiencing some tightness, but was set to reach equilibrium by the fourth quarter, driven by waning seasonal demand and an expected increase in output globally.
Near-term price outlook
However, Morgan Stanley expects oil prices to end the third quarter at $86 a barrel, representing some near-term upside from current levels.
Doubts over demand outlook
Markets remained doubtful over the outlook for crude demand, amid growing signs that global economic growth was cooling amid pressure from high interest rates. Doubts over top oil importer China remained, even after the country unexpectedly lowered benchmark interest rates to foster growth. Analysts said the rate cut was too small to inspire confidence.
China’s economic slowdown
The Third Plenum of the Chinese Communist Party also yielded scant cues on planned stimulus measures from Beijing, even as the Chinese economy grew less than expected in the second quarter. Cooling economic growth bodes poorly for oil demand.
Read more: Oil prices rise as investors look for additional U.S. rate cut cues
Geopolitical tensions
Oil markets were also watching for any new developments in the Israel-Hamas conflict, as ceasefire talks were set to resume. However, Israeli forces continued to carry out strikes against regions in Gaza.
U.S. political landscape
U.S. politics were also in focus, with President Joe Biden stating he will not run for reelection and endorsing Vice President Kamala Harris as the Democratic presidential candidate. Both Biden and Harris were seen polling behind Republican nominee Donald Trump, who has flagged plans to increase U.S. oil production if he wins the presidency.
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