Improved Supplies and China’s Economic Situation

Oil is poised for a record drop for the second in a week amid signs of improved supplies and a worsening economic situation in China, the largest importer.

Futures for West Texas Intermediate crude settled at $79 a barrel on Friday, down about 2.5% on the week. Signs of improving U.S. relations with sanctioned oil producers (Iran and Venezuela) have eroded global supplies, while erratic growth in China dampened demand prospects.

Crude oil is now trading at just below its level at the beginning of the year, despite efforts by Saudi Arabia and Russia, key OPEC+ countries, to raise prices by restricting supplies. Expectations that the Federal Reserve has not yet fully completed its monetary tightening campaign have exacerbated headwinds, according to Bloomberg.

Investors Cutting Back on Oil Investment

In the US, investors are cutting back on their oil investment as a drawdown in WTI futures holdings has sent overall open interest to its lowest level since January. The American Oil ETF, the largest exchange-traded oil fund listed in the US, posted its biggest outflow since 2020 on Wednesday, losing more than $180 million.

“While there are signs of potential supply growth from the two OPEC producers, the market should continue to cut inventories through the end of the year,” said Warren Patterson, head of commodities strategy at ING Group. He added that this indicates that price increases will continue.

Investors will be waiting for more clues about the path of US monetary policy when Federal Reserve Chairman Jerome Powell speaks at a meeting of world central banks in Jackson Hole, Wyoming, later Friday.