Here's a look at what happened in oil markets in the week of August 10-14 and what the focus will be in the days to come.
OVERVIEW: Oil futures are headed for weekly gains of around 5% as stalled talks to reopen the Strait of Hormuz and persistent shipping risks in the Gulf keep the geopolitical risk premium embedded in prices. Brent crude, the global oil benchmark, is trading around $87 a barrel, while West Texas Intermediate is around $81 a barrel.
MACRO: U.S. inflation data this week tipped the scales in favor of the Federal Reserve holding interest rates next month. According to CME Group's FedWatch tool, traders are now pricing in a 30% chance of a rate hike. Still, markets remain focused on developments in the Middle East, as rising energy prices threaten to stoke inflation and could prompt central banks to raise interest rates.
GEOPOLITICAL RISKS: Control of the Strait of Hormuz, which carried around one-fifth of the world's oil before the war, has become the main sticking point in efforts to de-escalate tensions with Iran. Talks to reopen the waterway have made little progress, while President Trump has renewed his focus on sanctions and the U.S. blockade as a means of putting pressure on Tehran's economy. Iran laid out a list of demands for reopening the critical waterway, including the withdrawal of U.S. forces, ending of all sanctions and war reparations. Trump called for Iran to compensate the U.S. for killing American forces over the decades as well as the families of Iranian protesters slain in demonstrations.
SUPPLY AND DEMAND: It's becoming increasingly difficult to gauge how much oil is actually leaving the Gulf, market watchers say. The latest ship-tracking data suggest that flows through the Strait of Hormuz are running at around 4 million-5 million barrels a day, according to Capital Economics. Meanwhile, crude exports via pipelines that bypass the Strait appear to have fallen to around 4 million barrels a day following Houthi attacks on Saudi ships. However, the use of so-called "dark" loadings and transits means these estimates could be revised higher.
The Organization of the Petroleum Exporting Countries now expects global oil demand to grow by 580,000 barrels a day this year, down from 780,000 barrels a day previously. Next year's demand growth is instead seen at 2.16 million barrels a day, up from a previous estimate of 1.94 million barrels a day.
OPEC's projections remain far more optimistic than those of other forecasters. The International Energy Agency expects demand to decline by 1.6 million barrels a day this year, compared with its previous forecast for a 1-million-barrel-a-day decline, while disruptions at key shipping chokepoints derail the recovery in supplies, pushing up fuel prices and weighing on consumption.
WHAT'S AHEAD: Developments around any deal to reopen the Strait of Hormuz, as well as the pace of traffic through the waterway, will remain key for the oil market in the week ahead. Investors will also be watching China's industrial production figures, due Monday, for clues on how the country's crude oil processing fared in July.
"Crude oil processing is likely to have rebounded from a sharper decline, as crude oil imports in July also increased compared to the previous month," analysts at Commerzbank said.
Beyond oil-specific developments, markets will be keeping a close eye on the U.S. economic calendar, including the manufacturing PMI, Philadelphia Fed Business Outlook Survey, jobless claims and the minutes of the Federal Reserve's latest meeting, for further clues on the outlook for growth, inflation and interest rates.
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