Market Watch – Oil futures churned around the even mark on Monday as investors assessed their next move, after emerging-market and Chinese demand worries rippled through the market last week and handed oil prices their third weekly drop.
A surprise jump in U.S. crude inventories last week nicked prices, while overall strength in the U.S. dollar underlined concerns about global energy demand, sending prices lower. Still, late-week relief came the bulls’ way on news the U.S. and China prepared to resume trade talks, though expectations for a breakthrough remained low.
Early Monday, West Texas Intermediate crude for September deliveryCLU8, +0.12% on the New York Mercantile Exchange was down 16 cents, or 0.2%, at $65.75 a barrel after it had briefly moved above $66. The U.S. benchmark logged a 2.5% weekly decline through Friday.
The global benchmark, October Brent crude LCOV8, +0.58% rose 13 cents, or 0.1%, to $71.96 a barrel on the ICE Futures Europe exchange. Brent logged a 1.3% weekly loss through Friday.
Fears of broader damage to emerging markets as a result of Turkey’s currency crisis sent shock waves through commodity markets last week, led by a selloff for industrial metals. The ICE U.S. Dollar Index DXY, +0.07% which measures the U.S. unit against a basket of six major rivals, hit a 14-month high last week on haven-related demand. It was firmer again on Monday.
The emerging-market worries were compounded by signs of slower growth in China, where the trade dispute with the U.S. has dimmed the economic outlook for the world’s second-largest economy and its thirst for oil.
“U.S. import tariffs on China have likely intensified the country’s economic slowdown and forced policy makers to loosen monetary and exchange rate policies in China, and that has sent the [yuan] on a rapid depreciation against the U.S. dollar since mid‐June,” said Scott Anderson, chief economist with Bank of the West Economics, part of BNP Paribas.
“Global commodity prices, including energy, are declining, worsening the economic outlook for many commodity-driven emerging markets and forcing them to respond with devaluations of their own to maintain their competitiveness in the global marketplace. A vicious race to the bottom ensues,” he said.
On the supply side, U.S. sanctions on Iran specifically targeting oil are due to come into force in November, and analysts said it remains unclear exactly what volume of Iranian oil would be removed from the market.
Market observers, including Giovanni Staunovo, a commodities analyst at UBS Wealth Management, have speculated that Europe, Japan and South Korea will cut Iranian imports, while India has indicated it intends to halve its imports. Turkey and China are wild cards, but even if they hold steady, the impact of lost Iran oil on the market would amount to 1 million to 1.5 million barrels a day, as expected, he said.
Looking ahead, analysts and investors will be closely watching the Energy Information Administration’s U.S. stocks data on Wednesday, after last week’s reading showed a counter-seasonal rise in stocks.
Around the market, September natural gas NGU18, -1.15% fell 1.2% to $2.912 per million British thermal units after it finished last week little changed.
September gasoline RBU8, +0.40% was little changed at $1.9815 a gallon Monday after a weekly loss of around 2.9%. September heating oil HOU8, +0.27% rose slightly to $2.0984 a gallon, after a weekly loss to roughly 1.9%.
—Sarah McFarlane contributed to this article.