Oil futures settled lower Aug. 7 as demand outlooks came under pressure amid rising US-China tensions and lack of progress on a US stimulus package.
NYMEX September WTI settled down 73 cents at $41.22/b and ICE October Brent settled 69 cents lower at $44.40/b.
Crude futures had trended lower overnight after US President Donald Trump issued two executive orders giving US companies 45 days to stop dealing with Chinese companies ByteDance — the Chinese owner of TikTok — and WeChat, the messaging platform owned by Tencent, whose shares slumped 10% as a result.
The action "raises concerns about the potential that strong China demand we have seen could have a setback," Price Futures Group senior market analyst Phil Flynn said. "It pushed oil down, as it did all markets."
US-China tensions came under further pressure later Aug. 7 after the White House imposed sanctions on a number of senior Chinese officials for their roles in the recent crackdown on dissidents in Hong Kong, according to media reports.
Oil prices briefly spiked ahead of the US open on the back of better-than-expected US employment data. Non-farm payrolls expanded by 1.76 million in July, Bureau of Labor Statistics data showed Aug. 7, moving the US unemployment rate to 10.2%.
NYMEX September RBO settled down 2.05 cents at $1.2076/gal and September ULSD settled 3 cents lower at $1.2199/gal.
While the jobs data came in above market expectations, it indicated that the labor recovery has slowed since June, when the economy added 4.8 million jobs.
"The non-farm payroll report confirmed economic data is plateauing and that the third quarter rebound everyone expected is not happening," OANDA senior market analyst Edward Moya said. "The only thing saving oil prices is OPEC+ reaffirming their commitment to production cuts. If Iraq and the other [non-compliant countries] do not live up to their promises to make up for the shortcomings earlier in the year, oversupply fears will sharply drag down oil prices."
Lack of progress between US lawmakers on a coronavirus stimulus package further diminished market optimism following the jobs report, analysts said.
Talks between Congressional Democrats and the White House broke down early Aug. 7. While some progress has been made this week, the two sides remain far apart on several key issues of the package, including an extension to a $600 federally funded weekly unemployment stipend that expired July 31.
Representatives from both sides are scheduled to meet again later Aug. 7. President Trump has suggested that he may implement parts of his stimulus package, including possibly a payroll tax cut, through an executive order if a deal is not soon reached. However, the White House is likely unable to authorize direct payments without Congressional approval.
"The good jobs number wasn't enough to overcome these other issues," Flynn said, referring to US-China tensions and the stimulus talks. "At the end of the day talks breaking down Republicans and Democrats reduced the chances for a deal, and that's bad for energy demand."
