By Giulia Petroni


Here is a look at what happened in oil markets in the week of July 29-Aug. 2 and what the focus will be in the days to come.


OVERVIEW: Oil prices have been volatile this week and are now headed for a fourth straight weekly loss, despite concerns over a broader regional war in the Middle East and the Federal Reserve's Chair Jerome Powell opening the door for a September rate cut. Brent crude, the international oil benchmark, currently trades around $77 a barrel, while the U.S. gauge West Texas Intermediate is around $73 a barrel. Prices are pressured by the latest string of U.S. data and worries over lackluster demand in top consumer China.


MACRO: The latest U.S. data showed job growth slowed sharply in July and the unemployment rate rose to its highest level since 2021, fuelling recession worries. The Labor Department reported on Friday that employers added 114,000 jobs last month, missing expectations, while the unemployment rate jumped to 4.3%. Weaker-than-expected labor market data follows a disappointing manufacturing report on Thursday, with the Institute for Supply Management saying its manufacturing PMI dropped to 46.8 last month, the lowest reading since November, from 48.5 in June.

Meanwhile, at the end of its two-day meeting earlier this week, the U.S. central bank unsurprisingly kept interest rates steady in a range between 5.25% and 5.5%, a two-decade high, but Powell said officials could cut them in September. The dovish comments were welcomed by oil markets, as investor appetite for commodities is expected to rebound as soon as the U.S. gets its long-awaited rate cuts.


GEOPOLITICAL RISKS: Rising tensions in the Middle East are keeping markets on edge after the killing of Hamas's political leader in Tehran. Iran is soon expected to retaliate against Israel, raising fears of a full-scale war in the Middle East that could disrupt global supplies and denting hopes for a ceasefire deal in Gaza.

Fighting has also intensified at the Israel-Lebanon border. An Israeli airstrike in Beirut killed Fuad Shukr, one of Hezbollah's top military leaders, as retaliation for an attack on the Israel-controlled Golan Heights that killed 12 young people.

According to Capital Economics' economist Joe Maher, Iran's next steps are crucial as the country accounts for more than 3% of global crude oil supply. "Any further escalation in tensions that could lead to a disruption to its oil supply, either through an attack on its oil infrastructure or via firmer enforcement of U.S. sanctions on its oil exports, would present a significant upside risk to prices," Maher said in a note to clients.


SUPPLY AND DEMAND: The Energy Information Administration's latest weekly report was once again bullish for oil, with commercial crude oil stocks falling by 3.4 million barrels to 433 million barrels in the week ended July 26, against expectations of a 200,000 barrels draw. Gasoline inventories fell by 3.7 million barrels, while distillate fuel stocks rose by 1.5 million barrels a day.

Meanwhile, an OPEC+ ministerial committee made no recommendations for the group to change its output policy at a meeting on Thursday and didn't give any hints on whether a gradual phase-out of voluntary output cuts could start in October. Some analysts are now saying member states might decide to delay the planned phase-out of voluntary output curbs if demand continues to be soft.


WHAT'S AHEAD: Further developments in the Middle East are certainly expected to continue moving prices in the coming days and weeks, with market watchers now awaiting to see the extent of Iran's retaliation.

On the oil market calendar, the EIA's weekly inventory data and short-term energy report will be key areas of focus next week. According to analysts at Commerzbank Research, the EIA could revise its demand estimate downward in light of the economic weakness in China and Europe. Also the outlook for U.S. oil production will be of particular interest. "In view of the $10 price drop in the last four weeks, the EIA is unlikely to raise its forecast for U.S. oil production," and will likely continue to expect an undersupplied oil market in next year, they say in a note to clients.


Write to Giulia Petroni at giulia.petroni@wsj.com


(END) Dow Jones Newswires

08-02-24 1235ET