Oil Prices Stuck in a Narrow Range

Brent crude prices dropped by 1.7% to $86.00 per barrel this week, which is above the dip at $84.45 on July 10. Brent prices jumped to two-month highs at $88.52 on July 5. However, June unemployment in the United States unexpectedly rose to 4.1%, putting pressure on oil prices. Consequently, Brent prices retreated by 0.7% to $87.06 on the same day.

The pressure continued this week amid fears of severe oil infrastructure damage in the Gulf of Mexico. However, the actual damage caused by Hurricane Beryl was much less than feared, meaning that U.S. oil exports will likely recover soon as weather conditions normalize.

Oil traders were also disappointed by lower-than-expected June inflation in China. Consumer prices dropped to 0.2% YoY, missing the 0.4% consensus. Additionally, the monthly consumer price index declined by 0.2% compared to the expected 0.1% rise. This is a negative signal for oil prices.

Overall, negative developments in the two largest oil-consuming nations sent oil prices down. However, OPEC maintained its oil demand increase forecast for 2024 at 2.2 million barrels per day, which provided some support for prices. The U.S. Energy Information Administration reported another decline of 3.44 million barrels in oil inventories, beating the consensus expectation of an increase by 700,000 barrels. This news followed a previous report of a 12.15 million barrel decline, indicating that oil demand in the United States remains high.

The upside potential for oil prices is rather limited after a 2.2% recovery for Brent crude. Tensions in the Middle East are seen easing after Hezbollah promised to cease fire if Israel agreed to a truce with Hamas. Previously, fears of military escalation in northern Israel had contributed to oil prices hitting $88.00-90.00 per barrel.

The June inflation report in the U.S. could introduce some volatility to the market. Wall Street expects headline inflation to slow to 3.1% YoY compared to 3.3% in May. Any unexpected surprises could elevate market volatility. Brent prices may continue to consolidate around $85.00-86.00 per barrel.

Large investors see prices trending upwards, at least in the short term. The United States Oil Fund (USO) reported net fund inflows of $63.5 million and $16.8 million over the last two weeks, respectively. However, this week saw investors withdrawing $40.6 million. This suggests that some investors believe Brent prices may jump again to $88.00-90.00 per barrel before potentially dropping to the support level at $80.00-82.00 per barrel.