Oil falls over 1% as investors worry about China demand outlook

By Shariq Khan

NEW YORK (Reuters) -Oil prices fell about 2% on Friday and were set to end the week around the same levels as last, with Brent crude just below $80 a barrel, as investors tempered expectations of demand growth from top oil importer China.

Brent crude futures fell by $1.06, or 1.3%, to $79.98 per barrel by 2:15 p.m. ET (1815 GMT), while U.S. West Texas Intermediate crude futures fell $1.22, or 1.6%, to $76.94.

Brent futures ended last week at $79.66 a barrel, while WTI futures had closed at $76.84.

Data from China on Thursday showed its economy lost momentum in July, with new home prices falling at the fastest pace in nine years, industrial output slowing, and unemployment rising.

That has raised fresh concerns about a slump in demand from the top oil importer, while refineries in the country sharply cut crude processing rates last month on tepid fuel demand.

It has been a volatile week in oil markets: on one hand you had fears of supply disruptions from a wider Middle East war, but on the other, slowing growth in China forced revisions of demand forecasts,” said Andrew Lipow, president of energy consultancy Lipow Oil Associates.

The Organization of the Petroleum Exporting Countries on Monday cut its forecast for this year’s oil demand growth, citing softness in China. The Paris-based International Energy Agency also cited weak demand in China when it slashed its 2025 forecasts on Tuesday.

Low liquidity likely triggered some of the large price swings seen this week as many European and North American investors were likely still on holiday, UBS analyst Giovanni Staunovo said.

Oil futures rallied at the start of the week as traders braced for retaliation by Iran against Israel over the slaying of a Hamas leader in Tehran last month. But some of that risk premium was priced out because Iran has not struck yet, analysts at Commerzbank Research wrote on Friday.

A fresh round of Gaza ceasefire talks began on Thursday in Qatar but it has been paused until next week, with involved parties sending mixed signals on progress.

“Provided the situation in the Middle East does not escalate further, the oil price is likely to tread water,” the Commerzbank analysts said.

A string of data releases from the U.S. kept a floor under oil prices: retail sales beat analysts’ expectations, and fewer Americans filed new jobless claims last week, sparking renewed optimism around economic growth in the biggest oil market.

(Reporting by Shariq Khan in New York and Arunima Kumar in Bengaluru; Additional reporting by Sudarshan Varadhan in Singapore; editing by Jane Merriman, Susan Fenton and Mark Potter)