Oil drops over 1% and records a weekly decline of 3% due to concerns about Chinese demand.

Oil prices fell more than 1% on Friday, marking a third consecutive weekly decline due to weak demand in China and expectations of a ceasefire agreement in Gaza, which could ease tensions in the Middle East and alleviate supply concerns.

Brent futures for September dropped $1.24, or 1.51%, to $81.13 per barrel, while West Texas Intermediate in the U.S. fell $1.12, or 1.43%, closing at $77.16.

For the week, Brent lost over 1%, and WTI fell more than 3%.

Yesterday’s stronger-than-expected U.S. GDP figures initially supported the crude market.  However, these gains were overshadowed by concerns about declining Chinese oil demand.

Data released last week showed China’s total fuel oil imports fell 11% in the first half of 2024, raising worries about broader demand prospects.

China’s economy threatens to enter a deflationary cycle, where prices drop due to low demand, said Yawger. “And that’s the worst possible scenario for the world’s largest crude importer.”

In the Middle East, hopes for a Gaza ceasefire have gained momentum.

After months of negotiations, U.S. officials indicated that parties are closer than ever to a six-week ceasefire agreement in exchange for Hamas releasing women, sick, elderly, and injured hostages.

However, the drop in oil prices was curbed by production threats from wildfires in Canada, a significant reduction in U.S. crude reserves, and hopes that U.S. interest rates will decrease in September.