Since July, crude oil prices have been trading in a broad oscillating pattern without experiencing excessive volatility. The market continues to weigh the dynamics between longer-term supply-side expansion and easing macroeconomic pressures, both of which have influenced oil prices in the short term and contributed to the first weekly gain in three weeks.
**Macroeconomic Environment: Geopolitical Factors Maintain Volatility, Rate Cut Expectations Rise Significantly**
On the macroeconomic front, regarding political dynamics, formal trilateral talks between the US, Russia, and Ukraine commenced last week. Trump indicated he has abandoned plans for additional sanctions against Russia and demands for a ceasefire as preconditions, instead supporting a focus on "long-term solutions." However, following Putin's meeting with Trump, three demands were presented: Ukraine's abandonment of the entire Donbas region, renouncing NATO membership while maintaining neutrality, and prohibiting Western military presence. While these demands represent some relaxation compared to Russia's June requirement for Ukraine to cede four regions, they remain unacceptable to Ukraine. This has led market expectations for formal Russian-Ukrainian ceasefire to turn pessimistic again, rekindling market sentiment and causing slight oil price rebounds.
Notably, in South America, media reported that the US is deploying three Aegis missile destroyers to waters near Venezuela to address what Washington considers threats from drug cartels, with vessels expected to arrive by weekend. Venezuela's president subsequently condemned Washington's "absurd, grotesque, and bizarre threats," stating the government would defend national sovereignty and territory, warning that no one can touch Venezuelan soil. This could further deteriorate US-Venezuela diplomatic relations and impact Venezuela's low-cost energy exports, warranting continued attention.
From a financial perspective, the Federal Reserve's July monetary policy meeting minutes indicated that most officials believe persistent inflation threats outweigh labor market weakening risks. While markets briefly noted ongoing disagreements among some officials, expectations for September rate cuts remain at a high 75%. Additionally, following the Jackson Hole symposium, markets interpreted Powell's comments as dovish, particularly his remarks about US economic resilience under policy adjustments, labor markets approaching full employment, and inflation being above target but significantly declining. These comments were interpreted as supporting Fed rate cuts in September, leading post-meeting markets to price in nearly 90% probability of September rate cuts.
**Fundamentals: Supply-Side Expansion Objectively Present, Consumption Performance Remains Weak**
Regarding fundamentals, recent crude oil fundamentals have remained relatively stable without significant changes, with most variables concentrated in supply-side dynamics. The oil price decline caused by earlier OPEC production increases has created negative feedback for US shale oil production. Due to falling oil prices, US shale producers are idling drilling rigs and reducing expenditures, with hydraulic fracturing units for shale oil and natural gas wells declining to four-year lows. The EIA predicts US shale oil production will continue declining through next year, potentially preventing US production from supporting further oil price declines.
Simultaneously, US-Venezuela diplomatic relations in South America are gradually freezing, which may further obstruct Venezuela's low-cost energy exports, affecting crude oil and asphalt supply conditions and providing downside support for oil prices.
**Inventory Data: Crude Oil Destocking Support Weak, Gasoline Production Cuts While Diesel Recovers**
For crude oil, US API crude inventory for the week ending August 15 recorded -2.417 million barrels versus expectations of -1.587 million barrels and previous value of 1.519 million barrels. Meanwhile, EIA crude inventory for the same week recorded an unexpected -6.014 million barrels versus expectations of -1.759 million barrels and previous value of 3.036 million barrels, marking the largest decline since the week of June 13, 2025.
This round of inventory data again recorded significant declines, far exceeding market expectations. Contributing factors include US refinery utilization reaching a historical high of 96.6%, maximizing crude oil consumption, and US exports surging by 795,000 barrels per day to 4.372 million barrels per day, the highest since April. The combined effect of these factors marginally weakened the impact of US shale oil production growth.
For refined products, US gasoline inventory for the week ending August 15 recorded -2.72 million barrels versus expectations of -915,000 barrels and previous value of -792,000 barrels. Distillate inventory recorded 2.343 million barrels versus expectations of 928,000 barrels and previous value of 714,000 barrels. From a refined products perspective, gasoline inventory continues its previous destocking trend, while distillates have accumulated again. Although gasoline's peak consumption season is gradually ending, high exports remain the core factor driving destocking. North American refineries are also gradually adjusting production policies to meet winter heating demand, shifting from gasoline priority to diesel production increases, jointly causing these changes in refined product inventories.
**Outlook and Perspective**
Overall, oil prices traded in an oscillating pattern last week with slight recovery in the latter half, though the overall magnitude remained relatively limited. Given current market conditions, medium to long-term supply-side loosening within commodity attributes remains the core factor suppressing oil price recovery. Despite resilient US consumption performance and consecutive inventory declines, support for oil prices remains relatively limited.
Regarding financial attributes, market expectations for Fed rate cuts in September essentially peaked following the Jackson Hole meeting, potentially leading to gradual improvement in macroeconomic pressures and opening upside space for oil prices. From political attributes, current market expectations for short-term Russian-Ukrainian ceasefire have declined again following US-Russia negotiations, with overall political volatility likely to persist.
Therefore, comprehensively speaking, oil prices may continue oscillating in the near term, with potential for some short-term rebounds, though overall magnitude may be relatively limited. Opportunities for bearish positioning on rallies merit attention.