Oil Prices Rebound on Strong Economic Data and Easing Trade Tensions
The oil market experienced a significant rebound in early trade on Thursday, reversing the losses incurred in the previous session. The upward momentum was driven by strong economic data from top oil consumers and signs of easing trade tensions between major economies. Brent crude futures rose by 27 cents, or 0.39%, to $68.79 per barrel at 0000 GMT, while U.S. West Texas Intermediate (CL=F) crude futures increased by 31 cents, or 0.47%, to $66.69.
Refining Activity and Supply Dynamics
The Energy Information Administration (EIA) reported that U.S. crude inventories declined by 3.9 million barrels to 422.2 million barrels last week, exceeding forecasts for a 552,000-barrel draw. This steeper decline suggests stronger refinery activity, tighter supply, and increased demand in the market. According to John Paisie, president of Stratas Advisors, "some support has come from the favorable margin environment associated with the refining sector." He noted that product spreads remain relatively wide across all regions, indicating a healthy demand for refined products.
Economic Data and Fuel Demand
The U.S. central bank's latest snapshot of the economy revealed that activity picked up in recent weeks. However, the outlook remains "neutral to slightly pessimistic" as businesses reported higher import tariffs putting upward pressure on prices. In contrast, China's economic data showed growth slowing in the second quarter but not by as much as previously feared. This was partly due to front-loading of imports to beat U.S. tariffs, easing concerns over China's economy.
Fuel Demand and Refining Activity
China's June crude oil throughput rose by 8.5% from a year ago, indicating stronger fuel demand in the world's largest crude importer. Additionally, the country's refined product output also increased, supporting higher fuel demand expectations. The data suggests that refineries are operating at full capacity, contributing to tighter supply and higher prices.
Easing Trade Tensions
The positive news on easing trade tensions between China and the U.S. has provided significant support to oil prices. President Trump lifted the ban on the sale of AI chips to China and announced a trade deal with Indonesia, indicating progress in resolving outstanding issues. Furthermore, Trump offered fresh optimism about the prospects of a deal with Beijing on illicit drugs and hinted at a possible agreement with India and Europe.
Impact on Oil Prices
Trade tariffs have the potential to slow down global economic growth, which could dampen fuel demand and put downward pressure on prices. However, the recent data suggests that oil prices are more resilient than expected, benefiting from stronger refining activity and increased fuel demand. The rebound in oil prices is likely to continue as long as trade tensions remain low and economic data remains positive.
Conclusion
The rebound in oil prices on Thursday was driven by strong economic data from top oil consumers and signs of easing trade tensions between major economies. Refining activity, supply dynamics, and fuel demand have all contributed to the upward momentum in oil prices. As trade tensions continue to ease and economic growth remains robust, it is likely that oil prices will remain resilient in the near term.