Oil drops as investors look past Biden exit, focus on weak fundamentals
Oil prices fell for a second consecutive session on Monday to hit their lowest in over a month, as investors looked past U.S. president Joe Biden’s decision not to seek a second term and focused on rising stockpiles and signs of weak demand.
Brent crude futures fell 47 cents, or 0.6%, to $82.16 per barrel by noon ET (1600 GMT), the lowest since June 11. The U.S. West Texas Intermediate crude futures contract for August delivery, which expires on Monday, was down 34 cents, or 0.4%, to $79.79 a barrel, also a one-month low.
WTI futures for September delivery were down 45 cents to $78.19.
Traders took Biden’s decision in their stride and also shrugged off escalating tensions in the Middle East to focus instead on a weak technical outlook, ample inventories and soft demand, TACenergy’s trading desk wrote on Monday.
While the oil market is visibly tight at the moment, it is expected to reach a balance by the fourth quarter this year and a surplus by next year, pulling Brent prices to the mid-to-high $70s range in 2025, according to analysts at Morgan Stanley.
U.S. President Joe Biden ended his re-election campaign on Sunday and endorsed Vice President Kamala Harris as the Democrat who should face Republican Donald Trump in the November election.
Energy policy will likely be a core debating point between Harris and Trump, but Citi analysts believe neither will promote policies that have an extreme effect on oil and gas operations as core positions.
In the Middle East, Israeli fighter jets struck Houthi military targets near Yemen’s Hodeidah port on Saturday, killing at least six people. The Houthis on Sunday told media that they will continue to attack Israel and not abide by any rules of engagement.
Israel also sent tanks back into the greater Khan Younis area of Gaza and at least 49 Palestinians were reported killed by Israeli fire, Gaza medics said on Monday.
Elsewhere, top oil importer China surprised markets by lowering a key short-term policy rate and benchmark lending rates to boost its economy, but the move failed to support oil prices.
“The Chinese interest rate cut has been too small to lift overall sentiment for crude oil,” said UBS analyst Giovanni Staunovo.
The U.S. Federal Reserve is due to review policy next on July 30-31, when investors expect it to maintain rates, though there have been signs of a possible cut in September.
“If we get an indication of a [near-term] rate cut, the Fed could be positive for risk sensitive assets like oil,” Staunovo said.
