Oil Prices Stuck on Lows Waiting for a Possible Further Drop

Brent crude prices declined by 1.8% to $81.18 per barrel this week, hitting a low of $80.63 per barrel, the lowest level since June 10. The decline halted at the support range of $80.00-82.00 per barrel. Investors are now waiting for further clues to direct prices, which may either fall towards the next support at $70.00-72.00 per barrel or recover to $88.00-90.00 per barrel. Both scenarios have equal chances of materializing, with prices swinging in a wide range between $80.00 and $90.00 per barrel. Prices are being capped by the cooling of the global economy but supported by tensions in the Middle East.

In the United States, the manufacturing sector is contracting, with the Manufacturing PMI for July dropping to 49.5 points, missing the consensus of 51.7 points. Similar declines in Manufacturing PMI were reported in Japan and the Eurozone, indicating contraction in sectors with the highest oil consumption across all three major economies.

Despite this, the U.S. reported a fourth consecutive week of declining oil inventories, with a drop of 3.7 million barrels last week, surpassing the expected 2.6 million barrels. This provides some support for oil prices, though such support may be short-lived, lasting only a few days until the next weekly report. More substantial factors are needed to push prices up.

In China, the central bank announced cuts to its 5-year loan prime rate by 0.10 percentage points to 3.85% and the one-year loan prime rate to 2.3%, down from 2.5%. This is intended to stimulate the domestic economy, raising questions about China's economic health given a 2.3% YoY decline in oil imports in the first six months of 2024.

Support for oil prices also comes from the Middle East, which remains a major source of global tensions. During a meeting with Syria's Bashar al-Assad in Moscow, Russian President Vladimir Putin remarked that the situation in the Middle East "tends to worsen," hinting at possible further escalation in the region.

Large investors appear to remain calm. The United States Oil Fund (USO) reported a near-zero capital flow balance, with net inflows of $31.2 million this week. This relatively low figure suggests that while large investors may be inclined to see Brent prices rise, they are not yet fully convinced of a positive scenario.