Here's a look at what happened in oil markets in the week of Aug. 3-7 and where the focus will be in the days to come.
OVERVIEW: Oil prices trade higher on Friday, but remain on track for weekly losses as investors await the outcome of Iran-Oman talks to reopen and manage traffic through the Strait of Hormuz. Brent crude, the global oil benchmark, is trading around $83 a barrel, while West Texas Intermediate futures are at around $78 a barrel.
MACRO: An unexpected drop in U.S. nonfarm payrolls for July dented expectations of interest-rate hikes in September. According to the CME Group's FedWatch tool, traders are now pricing in a nearly 42% chance of a hike from 57% earlier on Friday. The July report is an important one, market watchers say, as investors await clues about the Federal Reserve's next move when policymakers convene next month.
GEOPOLITICAL RISKS: Developments surrounding the status of the Strait of Hormuz have caused another volatile week for oil. Crude prices fell in the first half of the week after the U.S. canceled strikes on Iran and Iran-Oman talks showed progress, but later recovered as doubts grew over a lasting de-escalation.
Negotiations advanced on a proposal to split shipping lanes through the Strait into an inbound lane near Iran and an outbound lane near Oman, though Iran's Islamic Revolutionary Guard Corps pushed for greater recognition of Iran's authority, transit fees, and stronger U.S. commitments to ease sanctions.
"While the progress in negotiations between Iran and Oman have raised hopes of a future recovery of oil exports from the Middle East, Iran's clear desires to exert control over the Strait is a persistent issue," said Kieran Tompkins from Capital Economics.
SUPPLY AND DEMAND: China's crude oil imports rebounded 22% in July from June's nearly nine-year low, averaging 8.4 million barrels a day, helped by the temporary reopening of the Strait of Hormuz, according to Commerzbank. However, imports remained about 3 million barrels a day below first-quarter levels. Meanwhile, oil product exports climbed to their highest level this year after export restrictions were eased.
Saudi Arabia cut the official selling price for September deliveries of Arab Light crude to Asia by a further $0.50 to a discount of $2 a barrel compared with the Oman/Dubai benchmark. "The significant price reduction in recent months is primarily the result of a slowdown in demand," analysts at Commerzbank say. "Crude oil imports and crude oil processing in China had fallen to their lowest levels in years in June."
WHAT'S AHEAD: Global oil markets will turn their attention next week to monthly reports from the three major energy agencies, which are likely to underscore tightening physical market conditions. Global crude inventories have continued to decline despite efforts to reroute exports from the Gulf, a trend that could provide further support for prices. The U.S. Energy Information Administration releases its report on Tuesday, followed by the Organization of the Petroleum Exporting Countries and the International Energy Agency on Wednesday.
Investors will also be watching U.S. inflation data for clues on the interest-rate outlook. The consumer price index is due Wednesday, followed by the producer price index on Thursday.
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