Oil Prices Fall on Expected Slow Demand in China

Oil Prices Fall on Expected Slow Demand in China

Oil prices decline Monday morning over economic concerns in China as there are signs of a slowdown in growth recovery in the world’s top crude oil importer, raising concerns over the demand outlook.

International benchmark Brent crude traded at $78.94 per barrel, representing a 1.16% loss from the closing price of $79.87 a barrel in the previous trading session on Friday.

The market had rallied strongly last week due to heavy investor positioning and rising expectation that demand would outpace supply levels following oil group production cuts.  Today, the American benchmark West Texas Intermediate (WTI) traded at the same time at $75.32 per barrel, down 1.38% from the previous session’s close of $74.28 per barrel.

According to China’s National Bureau of Statistics, the country’s economy expanded by 6.3% in the second quarter from a year earlier, falling short of predictions of 6.9%. Although China’s gross domestic product surpassed the 4.5% rise in the first quarter, the data overshadowed hopes of recovering demand to put downward pressure on prices.

Oil prices posted a limited increase of 4% last week over fears of tight supply driven by Saudi output cuts, and hopes of increased demand in the world’s largest oil consumer, the US. Investors are awaiting the Federal Open Market Committee (FOMC) meeting on July 25–26 with hopes that the US Federal Reserve (Fed) will soon hit the brakes on interest rate hikes.

Although data released last week suggested that inflation was moderating, Fed Governor Christopher Waller said on Thursday that he was not ready to declare an end to rate hikes this year. Despite the recent rise in the dollar index, the greenback remains lower than it was in July, encouraging trading with foreign currency holders because oil is cheaper.

Last week, the market rallied. Oil prices increased by around 4% during the week ending July 14 over fears of tight supply driven by Saudi output cuts, and hopes of increased demand in the world’s largest oil consumer, the US.

International benchmark Brent crude traded at $81.38 per barrel on Friday, increasing 3.7% relative to the closing price of $78.47 a barrel on Friday last week.

Similarly, the American benchmark West Texas Intermediate saw gains while trading at $76.91 per barrel at the same time, posting a 4.1% rise from last Friday’s session that closed at $73.86 a barrel.

Both benchmarks are now poised to post a third straight week of gains for the first time since April. Prices started the week on a negative note over uncertainty before the release of new economic data from the US and China, the world’s largest oil consumer and importer, respectively.

Crude oil supply cuts from Saudi Arabia and Russia supported price increases during the week. Saudi Arabia, the world’s largest exporter of crude oil, announced its intention on July 3 to unilaterally extend production cuts of 1 million barrels per day through August, leaving the door open for further extensions.

Russia followed suit with an announcement of a voluntary reduction of exports by 500,000 bpd in August, on top of the 700,000 bpd in place since March. The fall in the US dollar against other currencies also aided the rise in oil costs. The decline in the value of the greenback encouraged oil-importing countries to purchase more crude oil at cheaper dollar prices in support of higher crude prices.

On Tuesday, the price of Brent crude exceeded $79 per barrel and breached the threshold of $80 per barrel on Wednesday for the first time since the beginning of May on fears of tight supply. Moreover, annual consumer inflation in the US came in at 3% in June, marking the lowest level in more than two years and easing sharply from 4% in May, according to official figures released on Wednesday.

The US consumer price index (CPI), which measures changes in the prices of goods and services from a consumer’s perspective, also came below the market estimate of 3.1%. The index bolstered market sentiment due to increased demand in the world’s largest oil consumer.

China’s crude oil imports increased 45.3% year on year in June to the second-highest monthly amount on record, according to customs figures released on Thursday. Markets interpreted this data as bearish since the country’s inventories grew amid concerns over slowing domestic consumption. #Oil Prices Fall on Expected Slow Demand in China Futureview Analysts Place Banking Stocks on Sell Radar