Despite a surge in oil prices this week on expectations of a major escalation in the Middle East, the benchmarks were set for their fourth weekly loss in a row as demand concern outweighed the war premium.
Both Brent crude and West Texas Intermediate were up earlier in the day, but overall prices were down on last week, with Reuters citing a survey revealing a slowdown in manufacturing activity across most of the world and the third annual road traffic decline in China.
PMI readings for July showed a slowdown in activity in Asia, Europe, and the United States, with the U.S. drop especially steep, reaching the lowest in eight months on a decline in new orders, to a reading of 46.8.
The eurozone was doing even worse, with PMI across the single-currency bloc logging a reading of just 45.8 in July. The figure was unchanged from the previous month but still rather weak, prompting an inference of lower energy consumption and, by extension, lower oil consumption.
China was doing better in manufacturing activity but its July reading also showed a sub-50 PMI, meaning a contraction, which automatically affects oil prices due to China’s status as the world’s largest importer of the commodity.
On the bullish side, besides the escalation risk in the Middle East, the EIA surprised many by reporting stronger-than-expected domestic oil demand for May. While this will not affect prices per se, it might spark expectations of stronger than initially believed oil demand growth through the rest of the year.
Despite the weakness in prices, however, some traders have started betting on Brent not just going higher but breaking through $100 per barrel. Bloomberg reported that on Wednesday alone, 300,000 crude oil call options were traded—the highest single-day volume since April.
It seems concern about demand prevailed, with Brent losing most of what it gained earlier in the week to trade barely above $80 per barrel earlier in the day.