Oil Traders Reverse Sentiment As U.S. Demand Collapse Fears Are Proven Oversold - Again

Meanwhile, Russian exports continue to thrive despite the sanctions: File Image/Pixabay

Oil trading sentiment underwent yet another radical about face on Thursday, with earlier jitters about demand health thanks to a rise in U.S. crude stocks obliterated by data showing that U.S. retail sales rose more than expected in July.

As a result and as of 1730 GMT, Brent was up $1.43, or 1.79 percent, at $81.19 per barrel; West Texas Intermediate increased by $1.41, or 1.83 percent, to $78.38.

The U.S. Commerce Department's Census Bureau revealed on Thursday that retail sales increased 1.0 percent last month after a downwardly revised 0.2 percent drop in June; another report showed a smaller than expected increase in the number of Americans filing for unemployment benefits.

It's unclear why oil traders were bullish about the news, since the signal that demand isn't collapsing may compel central banks not to cut interest rates – a hope that has helped support crude prices of late – by an expected 50 basis points next month.

As in earlier sessions, the fear that Iran will attack Israel in response to the killing of a Hamas leader last month was also said to have supported oil prices; Tim Snyder, chief economist at Matador Economics, remarked, "Geopolitics and the risk of an expanding conflict in the Middle East are propping up prices, as the threats of retaliation continue to grow louder."

However, capping gains was China, whose factory output growth slowed in July and whose refinery output fell for a fourth month.

Jay Hatfield, chief executive officer of Infrastructure Capital Advisors, warned that demand for oil may well weaken in the foreseeable future as the summer driving season winds downs in the Northern Hemisphere, but he added that seasonal declines sometimes see the commodity rallying, this time "with Middle East tensions serving as a catalyst; and then, the momentum trade kicks in."

In other oil news on Thursday, further evidence that the sanctions against Russia are having questionable effects came in the form of Russian exports of petroleum products to Asia via the southern tip of Africa: they nearly doubled in July from a month earlier for an all-time high, according to LSEG shipping data.

Russia's shipments of fuels via the Cape of Good Hope en route to Asia reportedly jumped to 1.1 million metric tons, as more tankers took the longer route instead of the Suez Canal.