Oil prices dropped about 2% to a six-week low on Tuesday due to rising expectations of a ceasefire in Gaza and increasing demand concerns in China.
Brent futures decreased by $1.38, or 1.7%, to $81.02 a barrel by 12:13 p.m. EST (1613 GMT), while U.S. West Texas Intermediate (WTI) crude fell $1.49, or 1.9%, to $76.91.
Both crude benchmarks are on track for their lowest closes since June 7, entering technically oversold territory for the first time since early June. This marked the first time WTI futures have declined for four consecutive days since early June, while Brent fell for the third day in a row.
In the Middle East, efforts to negotiate a ceasefire between Israel and Hamas, based on a plan proposed by U.S. President Joe Biden and mediated by Egypt and Qatar, have gained traction over the past month. Israeli Prime Minister Benjamin Netanyahu indicated to the families of hostages held in Gaza that a deal for their release could be imminent, despite ongoing fighting in the Palestinian enclave. Biden is set to meet Netanyahu at the White House on Thursday.
The conflict in Gaza has supported oil futures as investors have factored in the risk of potential disruptions to global crude supply from key producing regions in the Middle East. U.N. Special Envoy to Yemen, Hans Grundberg, warned of a significant risk of regional escalation following new Iran-backed Houthi attacks on commercial shipping and Israel’s first airstrikes on Yemen in retaliation for Houthi drone and missile attacks on Israel.
Meanwhile, Palestinian factions, including rivals Hamas and Fatah, have agreed to end their divisions and form an interim national unity government during negotiations in China.
“Ceasefire negotiations in the Middle East and an uncertain macroeconomic outlook in China are exerting downward pressure on oil prices this week,” Claudio Galimberti, global market analysis director at Rystad, said in a note.
Additionally, the U.S. dollar strengthened to a nine-day high against a basket of other currencies, making oil more expensive for buyers using other currencies, which can reduce demand.
Despite this, growing bets on interest rate cuts in September could provide a floor for oil prices, as lower borrowing costs tend to support oil demand. European Central Bank Vice-President Luis de Guindos hinted at a possible interest rate cut in September, while in the U.S., investors are betting that the Federal Reserve will cut interest rates in September. The Fed had previously raised rates aggressively in 2022 and 2023 to curb inflation, but higher interest rates increase borrowing costs for consumers and businesses, potentially reducing economic growth and oil demand.
In China, the government surprised markets by cutting major short and long-term interest rates on Monday, its first broad move since last August, signaling an intent to boost growth in the world’s second-largest economy.
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