Oil prices steady amid supply concerns and China's economic recovery

Oil Prices Remain Steady Amid Mixed Global Factors

Oil prices showed minimal movement on Tuesday as concerns over China's economic recovery countered supply worries fueled by Middle Eastern tensions and Ukrainian assaults on Russian refineries.

Price Movements

Brent crude futures for August delivery nudged up by 7 cents, reaching $86.06 per barrel by 0015 GMT, just ahead of the contract's expiration. The more actively traded September contract saw a slight increase of 8 cents, settling at $85.23. U.S. crude futures also experienced a modest climb by 11 cents, closing at $81.74 per barrel. Both benchmarks experienced approximately 3% gains last week, marking their second consecutive week of increases. However, rising concerns about China's economic outlook have since tempered the momentum.

China's Economic Outlook

China, the world's second-largest economy and its largest oil importer, faces a disheartening prognosis. Retailers in the country are anticipating near-term challenges after a lackluster mid-year online shopping festival. Consumer spending has been subdued, driven by worries surrounding personal wealth exacerbated by a real estate downturn, sluggish wage growth, and high youth unemployment. These factors jeopardize China’s ability to meet its economic growth target of "around 5%" for this year.

Middle East Tensions

Meanwhile, the Middle East remains a hotbed of conflict. Israeli airstrikes targeting aid supplies in Gaza resulted in at least 11 Palestinian casualties, according to medical sources. Israeli forces have also advanced deeper into Rafah in southern Gaza and revisited previously controlled northern areas. Despite over eight months of combat, international mediation efforts, particularly those supported by the United States, have yet to achieve a ceasefire. Hamas insists that any agreement must end the war permanently, while Israel only agrees to temporary pauses until Hamas can be entirely eradicated.

Ukrainian-Russian Conflict

The Ukraine-Russia war continues to impact oil dynamics. Ukrainian President Volodymyr Zelenskiy announced that Ukraine has targeted more than 30 Russian oil processing and storage sites, although a precise timeframe was not given. The latest assault on June 21 saw Ukrainian drones hitting four refineries, including the Ilsky refinery in southern Russia. Additionally, EU nations have agreed on new sanctions against Russia, including a ban on reloading Russian liquefied natural gas (LNG) within the EU for further overseas shipments.

U.S. Economic Policies

In the United States, San Francisco Federal Reserve Bank President Mary Daly stated that the Federal Reserve should refrain from cutting interest rates until there is solid confidence that inflation is trending toward 2%. Delaying rate cuts could maintain higher borrowing costs for longer, potentially dampening economic activity and reducing oil demand. Concurrently, U.S. crude oil stockpiles were expected to decrease by 3 million barrels in the week ending June 21, according to a preliminary Reuters poll. The poll also anticipated a decline in gasoline stocks while projecting an increase in distillate inventories.

Overall, the mixed signals from various global events and market conditions continued to keep oil prices largely stable, reflecting a complex interplay of factors impacting the global oil market.