Crude oil posts fourth straight drop with growing concerns about demand in China

Crude oil futures fell to six-week lows Tuesday amid a broad decline in commodities, dragged down by renewed concerns over Chinese demand given the absence of further government support for the economy.

“Oil bears appear to be getting in early ahead of the seasonal decline for oil prices,” Exinity chief market analyst Han Tan told MarketWatch, noting that crude prices have averaged monthly declines from August through November during the past five years.

In the Middle East, efforts to reach a ceasefire deal between Israel and Hamas in Gaza seem to have gained momentum, and Israel Prime Minister Netanyahu told families of hostages that a deal to secure their release could be near.

Canada’s oil production has remained mostly stable, but the risk from wildfires is growing, Goldman Sachs analysts said.

Front-month Nymex crude (CL1:COM) for September delivery closed -1.8% to $76.96/bbl, and front-month September Brent (CO1:COM) ended -1.7% to $81.01/bbl, the lowest settlement value for both benchmarks since June 7.

U.S. diesel futures (HO1:COM) also settled at their lowest since June 7, while gasoline futures (XB1:COM) closed at their lowest since June 14.

Natural gas futures (NG1:COM) fell for the first time in four sessions, giving back half of the previous day’s strong gains to finish -2.8% at $2.187/MMBtu.

ETFs: (NYSEARCA:USO), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (NRGU), (USOI), (UNG), (BOIL), (KOLD), (UNL), (FCG), (UGA)

Crude oil markets are tight for now but likely will move into surplus next year, with Brent prices declining into the mid-to-high $70s, Morgan Stanley analysts said.

Tight conditions will remain for most of Q3 but equilibrium will return by Q4, “when seasonal demand tailwinds abate and both OPEC and non-OPEC supply return to growth,” the bank wrote.

OPEC and non-OPEC supply should grow by ~2.5M bbl/day in 2025, well ahead of demand growth, Morgan Stanley said, adding that refinery runs look set to reach a peak this August and unlikely to return to that level until July 2025.