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Crude oil futures: Weak demand outlook drags sentiment amid China growth concerns

By  Yoke Wong

Edited by Vanessa Kintu

08:36, 23 August 2022

Sunset over the exterior of an oil refinery plant
Crude oil futures are derivatives, with crude oil as the underlying asset. Photo: Avigator Fortuner / Shutterstock

Global crude oil futures fell to a six-month low over the past week as weak economic data from China and the US dampened demand outlook for the commodity.

Retail sales in China increased by 2.7% year-on-year (YOY) in July, while industrial production was 3.5% higher, data from the National Bureau of Statistics showed on 15 August. This was below the average analysts’ expectations of 4.6% and 5%. 

China is the largest consumer of oil. Slower growth sparked concern on reduced demand.

Following weaker-than-expected data from China, the world's second largest economy, the US also released disappointing manufacturing data, which weighed on market sentiment amid slowing global economic growth.

According to the New York Federal Reserve’s Empire State manufacturing survey, business activity plummeted to -31.3 in August, compared with 11.1 in July.

“Looking ahead, firms did not expect much improvement in business conditions over the next six months,” said the Federal Reserve Bank of New York. 

Following the data release, Brent crude and West Texas Intermediate (WTI) oil prices plunged to a six-month low.

West Texas Intermediate (WTI) oil price chart

The WTI crude oil front-month futures contract traded on the New York Mercantile Exchange (NYMEX) fell on 15 August to below $90 a barrel – the lowest since late January this year. 

The WTI September contract fell as low as $86.53 on 16 August – the lowest since 26 January 2022 – before climbing and ending the week at $90.77. 

Despite rising above $90 a barrel, WTI prices remained around the six-month lows, NYMEX’s crude oil futures historical data showed.

Brent crude oil price chart

Brent crude futures traded on the Intercontinental Exchange (ICE) also fell, but remained just above $90 a barrel. The October contract was at $96.72 on 19 August –  the lowest since February 2022.

Are you interested to learn more about the crude oil futures market? Read this analysis for the latest crude oil futures news, market development and analysts’ price predictions. 

What are crude oil futures?

Crude oil futures are derivatives, with crude oil as the underlying asset.

Oil futures are contracts for forward delivery at a set price on a set date. Due to crude oil being an essential energy source, crude oil futures are one of the world’s most actively traded commodities.

Market participants (buyers, sellers and producers) use crude oil futures to trade and hedge their risks against unfavourable price movements in the market.

The two most heavily traded crude oil grades are Brent North Sea crude (commonly known as Brent crude) and West Texas Intermediate crude. Both serve as pricing benchmarks for major global oil supply.

Crude oil with sulphur content under 1% is categorised as ‘sweet crude’ – both Brent and WTI are well under 1%. The lower sulphur content makes Brent crude and WTI oil easier to refine and more attractive to petroleum product producers. 

Brent crude is the key reference for the international market, while WTI, with delivery points in the US, is a benchmark for the country.

Crude oil futures historical

West Texas Intermediate (WTI) 5-year price chart

Natural Gas

2.08 Price
-5.480% 1D Chg, %
Long position overnight fee -0.0381%
Short position overnight fee 0.0162%
Overnight fee time 21:00 (UTC)
Spread 0.0050

Gold

2,457.77 Price
-0.440% 1D Chg, %
Long position overnight fee -0.0196%
Short position overnight fee 0.0114%
Overnight fee time 21:00 (UTC)
Spread 0.30

Silver

30.30 Price
-3.060% 1D Chg, %
Long position overnight fee -0.0208%
Short position overnight fee 0.0126%
Overnight fee time 21:00 (UTC)
Spread 0.020

Oil - Brent

84.37 Price
+1.340% 1D Chg, %
Long position overnight fee 0.0241%
Short position overnight fee -0.0460%
Overnight fee time 21:00 (UTC)
Spread 0.032

Crude oil prices have been rising since December last year as global demand surged amid the post-Covid-19 economic recovery. Both Brent crude and WTI started the year at below $80 a barrel. Prices continued to climb early this year, spiking after Russia’s invasion of Ukraine on 24 February.

According to the International Energy Agency (IEA), Russia is one of the world’s top three crude oil producers and the second-largest natural gas producer after the US. Revenues from oil and natural gas accounted for 45% of Russia’s federal budget in 2021.

Russia’s invasion of Ukraine led to an unprecedented level of Western sanctions on the country, and import bans of Russian oil, coal and gas in much of the world.

On 8 March, less than two weeks after Russia’s invasion, the US announced it would ban Russian oil imports, while the UK said it would phase out Russian oil over the year. This pushed WTI crude oil futures prices to a 14-year high, hitting $130.50 a barrel on 7 March – the highest since July 2008. 

Brent crude futures surged to a 14-year high of $133.15 on 8 March, ICE data showed.

According to crude oil futures history, crude oil prices hit an all-time high in June 2008, when WTI surged to $143.67 a barrel and Brent crude spiked to $143.91 a barrel.

However, crude oil prices eased in late March as China imposed stringent lockdown measures to curb rising Covid-19 cases in several provinces. Although China lifted its Covid lockdown after two months, the global oil market weakened and fell from mid-June as rapidly rising interest rates and recession fears prompted a sell-off in the market. 

The WTI front-month contract was mostly above $100 a barrel, and rose above $120 on 8 June before falling to below $100 in the subsequent days. 

Brent crude oil 5-year price chartEU energy crisis to support crude oil futures

Despite the downtrend since June, Danish bank Saxo Markets believed the energy crisis in Europe could support crude oil prices.

On 3 June, the EU announced it would impose further sanctions against Russia by implementing a complete import ban on all Russian seaborn crude oil and petroleum products, subjected to a six to eight month transitory period. This latest import ban is set to hit 90% of the current oil imports from Russia. 

According to the EU, the trading bloc imported €48bn ($48.01bn) worth of crude oil and €23bn of refined oil products from Russia in 2021.

“The mentioned energy crisis in Europe continues to strengthen, the result being surging gas prices making fuel-based products increasingly attractive,” said Ole Hansen, head of commodity strategy at Saxo Markets on 19 August.

“This gas-to-fuel switch was specifically mentioned by the International Energy Agency (IEA) in their latest update as the reason for raising their 2022 global oil demand growth forecast by 380,000 barrels per day to 2.1 million barrels per day.”

Crude oil futures forecast 

Dutch bank ABN AMRO shared Saxo Markets’ sentiment.

 “Any slowdown in economic growth in the Eurozone and the US resulting in a drop in oil demand will most likely be balanced out by higher oil imports in China, benefitting of the lower prices,” said Hans van Cleef, ABN AMRO’s senior energy economist, on 18 July.  

ABN AMRO maintained its 2022 and 2023 Brent crude forecasts at an annual average of $110 to $130 a barrel, and WTI at $105 to $125 a barrel.

Scotia Bank expected the average WTI price in 2022 at $105 a barrel, falling to $95 in 2023.

The bank’s Brent crude average price forecast is $109 a barrel, falling to $99 in 2023.

When looking at crude oil futures price predictions keep in mind that these forecasts can be wrong. Forecasts shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before investing. And never invest or trade money you cannot afford to lose.

FAQs

What are oil futures doing right now?

Crude oil futures have been on a downtrend since June due to recession fears. Oil futures price movement is expected to be volatile as the market awaits key economic data from the US and more indication on interest rate hikes from the Jackson Hole symposium on 25 to 27 August.

What is the highest oil price ever?

Crude oil prices hit an all-time high in June 2008, when West Texas Intermediate (WTI) surged to $143.67 a barrel and Brent crude spiked to $143.91 a barrel.

Which country exports the most oil?

Saudi Arabia is the world’s largest crude oil exporter in 2021.

Markets in this article

Oil - Brent
Brent Oil
84.369 USD
1.111 +1.340%
Oil - Crude
Crude Oil
81.689 USD
1.704 +2.130%

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