Oil Dips as Major Asian Crude Importers Implement Restrictions
Oil dips Tuesday amid growing restrictions in major Asian crude importers and lower than expected economic performance from China and the United States, raising fear over demand outlook in the second half.
In August, the Organisation of Petroleum Exporting Countries and allies (OPEC+) has begun implementation of an additional 400,000 barrels per day into the market, the move that has further exacerbate pressure on crude prices.
International benchmark Brent crude was trading at $72.61 per barrel, dropped 0.38% after closing Monday at $72.89 a barrel.
Oil prices fell more than 3% during the previous trading session, as industrial data from the two largest oil consumers, China and the US, fell short of expectations.
Also, West Texas Intermediate crude futures dropped on Tuesday morning as the Delta variant of Covid-19 spreads in many regions of the world including major Asian crude importers, leading to uncertainty over global oil demand.
Twenty cities in China have been locked down as authorities try to contain the spread of the variant of the virus. Mobility restrictions mean demand for oil and its derivatives will decline.
In Indonesia, the largest gasoline importer in Asia, authorities have extended its partial lockdown, which started on July 3 and covers part of Java, Bali and 15 other cities, for a week through Aug. 9.
The country’s gasoline imports have declined by 25% due to mobility restrictions, according to Reuters.
Investors, meanwhile, are waiting for the weekly inventory report published by the American Petroleum Institute scheduled for later Tuesday ahead of the official report issued by the Energy Information Administration on Wednesday.
West Texas Intermediate oil futures for September delivery on the New York Mercantile Exchange were down 2.3% at $69.62 per barrel in morning trading, while Brent crude for October delivery on the Intercontinental Exchange was down 1.75% at $71.68 per barrel
Also, the US manufacturing showed growth in July but at a slower pace than June, with raw material shortages and consumers shifting their spending from products to services.
US Manufacturing Purchasing Manager’s Index (PMI) fell to 59.5 in July, down from 60.6 in June and below the forecast of 60.9.
Manufacturing activity growth in China also fell below expectations in July, with the PMI falling to 50.4 from 50.9 in June, compared to a market forecast of 50.8.
Weakening economic signs in China came with rising cases of the Delta coronavirus variant followed by intensified mitigation measures after the National Health Commission reported 55 locally transmitted cases in 14 provinces on Monday.
Mass virus testing has begun and travel warnings have been issued in many cities. The government announced that a negative test is required for those who travel.
On the supply side, investor concerns are still prevalent with the new output quota decision of OPEC+ oil producers, which started at the beginning of August, to increase overall production by 400,000 barrels per day.
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Oil Dips as Major Asian Crude Importers Implement Restrictions
