Emerging Oil Rally Ends, Traders Spooked By Conflicting Demand Messages

Optimism over ceasefire talks and interest rate cuts may be premature: File Image/Pixabay

Crude traders resumed their gloomy outlook on Friday due to reports of weaker U.S. consumer sentiment, and as a result oil incurred modest daily and more substantial weekly losses.

Brent settled down 37 cents to $85.03 per barrel, while West Texas Intermediate settled down 41 cents at $82.21 per barrel; for the week, Brent fell over 1.7 percent after four weeks of gains, and WTI logged a 1.1 percent weekly decline.

The latest item to trigger trading pessimism was a monthly survey by the University of Michigan showing that U.S. consumer sentiment fell to an eight-month low in July.

Additionally, Washington reported that the producer price index rose 0.2 percent in June as the cost of services climbed, but analysts clung to the hope that central banks would begin cutting their rates in the fall.

Yeap Jun Rong, market strategist at IG, said, "Cooling U.S. inflation numbers may support the case for the Fed to kick-start its policy easing process earlier rather than later."

Still, bearish sentiment reigns overall, and Tamas Varga, an analyst at PVM, noted of the world's biggest oil importer, "The recent downside correction is evidently over, although the speed of further ascent might be hindered by falling Chinese crude oil imports, which plummeted 11 percent in June from the previous year."

As for another influencer of oil trading - the cease-fire talks between Israel and Hamas - ailing U.S. president Joe Biden said Friday in a social media post that both parties have agreed to a framework; but national security advisor Jake Sullivan was quick to add that while "The signs are more positive today than they have been in recent months, there's still miles to go before we close — if we are able to close."

Meanwhile, Natasha Kaneva, head of global commodity strategy at JPMorgan, told clients in a note that investors essentially trimmed their positions, resetting Brent to a fair value of $84 for July and clearing the way for the bank's September target of $90 per barrel.

She wrote, "The view is underpinned by our expectations that both crude and liquids balances will tighten in the summer months, leading to significant stock draws."