“Ceasefire negotiations in the Middle East and an uncertain macroeconomic outlook in China are exerting downward pressure on oil prices this week.
President Biden’s decision to drop out of the leadership race has not had a material impact on oil markets, but the US presidential campaign will likely impact oil prices due to the centrality of energy policy on both tickets.
Crude prices in the next few days will largely hinge on economic news from China, the likelihood of US rate cuts and how negotiations progress in the Middle East.”

On the political front, US President Biden announced he would drop out of the 2024 presidential race and step aside for another Democratic candidate to take his place.

He has since endorsed Vice President Kamala Harris, and after all state party chairs have endorsed her bid, she seems the most likely candidate to earn the Democratic presidential nomination.

Although no official campaign policies have been released by Harris, her energy policy would likely closely resemble that of the current administration, including a continuation of the Inflation Reduction Act.

Harris, however, may choose to take a more centrist position on fossil fuels to win over more moderate votes.

If that comes to pass, she will have to defend her track record as California’s attorney general, where she brought lawsuits against oil and gas companies about climate change.

On the other side of the political divide, Ohio Senator JD Vance – who Republican Presidential nominee Donald Trump has chosen as his running mate – has voiced criticism of electric vehicles (EVs), citing their dependence on Chinese supply chains and the need for fossil fuels to generate electricity for charging those vehicles.

His proposed Drive American Act seeks to replace the $7,500 EV tax credit with a subsidy for US-made vehicles.

Diving into macroeconomic updates, rising unemployment claims in the US have sparked speculation that the Federal Reserve may move up its rate-cut plans.

Fed officials have hinted that improved inflation and a balanced labor market might lead to rate reductions by September.

Yet, if the increase in jobless claims were to overshoot, it would push the economy into a slowdown, which could dampen oil demand and limit price gains. The European Central Bank, meanwhile, has kept interest rates unchanged, citing persistent domestic price pressures and ongoing inflation.

In China, investment banks have revised their 2024 economic growth forecasts following weaker-than-expected second-quarter results.

China's GDP growth slowed to 4.7% in the three months, missing both the 5.1% consensus and the 5.3% growth of the first quarter.

This slowdown, along with weak retail sales, led several IBs to lower their projections to below 5%.

Conversely, the IMF has raised its forecast to 5%, reflecting a rebound in domestic consumption and exports despite a challenging global economic environment.

At the Third Plenum, which ended on 18 July, Chinese leaders emphasized advancing domestic technology and balancing development with national security, focusing on "deepening reforms" and modernization.

Crucially, the market awaits further policy details, but no significant changes have been outlined yet.

Turning to fundamentals, our research shows persistent tight balances for both crude and liquids, leading to significant stock draws.

This week's Energy Information Administration (EIA) data revealed a 4.87-million-barrel decline in US crude inventories, reaching the lowest level since February and well surpassing the forecast 0.8-million-barrel drop.

This marks the third consecutive weekly reduction and the longest streak of stockpile declines since September last year.

Additionally, while liquids supply is growing year over year by approximately 800,000 bpd, crude supply is expected to show minimal gains.

Rystad Energy's latest forecast sees global crude oil and condensate production reaching 82.68 million barrels per day (bpd) in the second half of 2024, with a small boost from Latin America and Africa.

Even so, these gains will be tempered by downward revisions in the Middle East and North America – with a 120,000-bpd reduction in Saudi Arabian output and, crucially, slower growth in the US due to a steady decrease in rig counts.

Despite the positive trends in Latin American countries, the overall global production outlook remains cautious due to ongoing OPEC+ cuts and various economic and environmental challenges.

The upcoming OPEC+ meeting on 1 August is expected to uphold the current oil output policies.