Oil prices post first weekly loss since June

By Myra P. Saefong and William Watts

Natural-gas futures lose nearly 8% for the week

Oil futures ended higher Friday, but tallied their first weekly loss in eight weeks as worries about Chinese demand, rising bond yields and a stronger dollar took a toll.

Price action

Market drivers

Renewed worries about China's property sector alongside a continued weak run of economic data from the world's second-largest crude oil consumer has been blamed for oil's pullback. WTI and Brent oil futures marked their first weekly losses since June.

There continues to be a "battle royale between supply and demand, with OPEC+ cutting production, led by Saudi Arabia, while Chinese economic woes act as a counterweight," Matt Smith, lead analyst for the Americas at Kpler, told MarketWatch.

"Saudi Arabia continues to slash supplies to global markets in an effort to flush out bearish speculators and support prices," he said, while "Chinese economic woes continue to provide gale-force headwinds to oil demand growth."

See: Global investors expect China to deliver a massive fiscal stimulus. Here's why it may never arrive

Analysts have argued, however, that underneath the hood, China's oil-consumption figures have held up.

In a Friday note, Michael Tran, commodity strategist at RBC Capital Markets, said that "while Chinese macro data has underwhelmed over recent weeks, end-use refined product data looks far from terrible."

"Chinese product inventories are tight and although diesel inventories have recently rebounded from the recent low, gasoline stocks have fallen for 13 consecutive weeks. Demand has been strong enough to keep product inventories subdued even with refinery utilization surging since exiting turnaround season in June," he said.

China's refinery run rate is clocking in at an annualized high of 14.9 million barrels a day, or mbd, an increase of 1.8 mbd year over year, Tran noted. Chinese refined product exports have remained relatively subdued, he said, with July flows tracking modestly higher on a monthly basis and softer gasoline exports offset by a moderate rise in gasoil and jet-fuel exports.

In the oil market, "if you're a hedger, its best to worry about a price spike because if the Chinese fears level out and the focus switches back to the supply side, or lack thereof, it could get ugly very quickly," said Phil Flynn, senior market analyst The Price Futures Group.

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Meanwhile, U.S. Treasury yields have broken out to the upside, with the 10-year yield BX:TMUBMUSD10Y rising earlier this week above 4.25% to a 15-year high. The dollar has rallied alongside, with the ICE U.S. Dollar Index DXY up 0.5% this week and around 1.5% so far in August.

A stronger dollar can be a negative for commodities priced in the unit by making them more expensive to users of other currencies.

-Myra P. Saefong

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08-18-23 1503ET

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