Oil Prices And Sentiment Fall Again, Traders Cling To Interest Rate Hopes

Meanwhile, hope for a Gaza ceasefire is dashed by new attacks on the territory: File Image/Pixabay 

The albatrosses of weak demand and rising inventories were said  to have been the chief reasons why oil prices on Monday extended their losses for a second straight session, albeit far less severely than was the case on Friday.

Brent settled down 23 cents at $82.40 per barrel, while West Texas Intermediate settled down 35 cents to $79.78 per barrel.

Monday also highlighted the arguably misplaced hopes among oil traders that had guided the market in recent days, namely, expectations of a ceasefire in Gaza that would extend to other regions; in fact, Israel fighter jets struck Houthi military targets near Yemen's Hodeidah port on Saturday, killing at least six people.

Plus on Monday, Israel also sent tanks back into the greater Khan Younis area of Gaza, with 70 Palestinians reportedly killed as a result.

But another questionable hope was stoked on Monday by the anticipated U.S. Federal Reserve's meeting on July 30-31; Giovanni Staunovo, analyst at UBS, said, "If we get an indication of a [near-term] rate cut, the Fed could be positive for risk sensitive assets like oil."

The Fed has repeatedly refused to enact cuts, citing the need for prolonged data that would favour such an initiative.

Alex Kuptsikevich, senior market analyst at FxPro, echoed the sentiments of many colleagues by stating, "Reversals from lower and lower levels are supported by a slowing global economy and stagnant demand; the only thing holding the price back from a real collapse is the fact that the oil supply has also been shrinking or stagnating in recent months."

For its part, analysts at Morgan Stanley stated that the oil market is tight at the moment, expected to balance by the fourth quarter, and go into surplus by next year, causing Brent prices to hover at the mid-to-high $70s range in 2025.

As for the weekend's big news in the U.S., some traders believed that president Joe Biden abandoning his bid for a second term in favour of vice president Kamala Harris all but assures a November win for Donald Trump, who would likely boost U.S. crude production and supposedly cause bearish prices in the long term.

Extending Monday's gloomy talk, Bloomberg noted that Canada is also coming under analytical scrutiny, "where a blast of heat across the Alberta oil patch has triggered a wave of wildfires…..an estimated 348,000 barrels per day of production are at risk, according to local wildfire and Alberta Energy Regulator data."