Oil Slides Below $75 as China, US Demand Slow
Oil prices slide below $75 as weak economic data from the US and China fuel demand concerns. A report released by the US Energy Information Administration (EIA) showed US commercial crude oil inventories down by 5.5MMbbls.
Data showed a slower-than-expected recovery in China’s economy since the lifting of COVID-19 restrictions. Brent crude traded at $74.03 per barrel, a 1.02% drop from the closing price of $74.79 a barrel in the previous trading session on Friday.
The American benchmark West Texas Intermediate (WTI) traded at the same time at $69.46 per barrel, down 1.01% from the previous session’s close of $70.17 per barrel.
In the US, economic growth has slowed in recent months due to high inflation and interest rates. Experts now await US consumer inflation data expected on Tuesday and the Fed’s decision on interest rates due Wednesday.
Negative economic data from China, the world’s largest importer of crude oil, also raised concerns about weakening demand.
According to China’s National Bureau of Statistics, the producer price index decreased by 4.6% in April compared to the same period last year, while the consumer price index rose by 0.2%.
Data showed a slower-than-expected recovery in China’s economy since the lifting of COVID-19 restrictions.
In addition, Iran’s message that it is open to an agreement with the West on its nuclear program also supported downward price movements.
Iran’s Supreme Leader, Ayatollah Ali Khamenei, said Sunday that a nuclear deal with the West is welcome as long as the country’s nuclear industry infrastructure remains intact.
Khamenei’s comments raised concerns that the balance in the oil market could be disrupted. Market players are concerned about Iranian oil flooding the market if sanctions are lifted on its crude oil exports.
The oil market managed to settle higher last week with Brent up 2.23% over the first trading week of 2024. Middle East tension and Libyan supply disruptions provided a boost to oil prices.
Though with the oil balance fairly comfortable over the first half of 2024, significant upside is likely limited, ING commodities strategies said in a note, assuming no escalation in the Middle East.
The more comfortable market is also reflected in Saudi Arabia’s latest official selling prices (OSPs) for February loadings. Cuts were seen across the board with the flagship Arab Light into Asia cut by US$2 per barrel month on month to leave it at US$1.50/bbl over the benchmark. Nigeria Eurobond Slumps after CBN Resumes OMO Auction
The decrease was larger than the market was expecting. OSPs for all grades into Europe, the Med and the US were also cut for February, ING commodities strategists stated.
After protests last week forced Libya to shut the Sharara oilfield (the largest in the country), Libya’s National Oil Corporation has now declared force majeure on supplies from the field. The shutting of the oil field saw total Libyan oil output fall from around 1.2m b/d to 981k b/d on Friday.
According to S&P Global Commodity Insights, the nearby El-Feel field which has a capacity of 70k barrels per day was also shut last week.
The latest positioning report shows that speculators reduced their net long in ICE Brent over the last reporting week by 29,532 lots to 169,843 lots as of last Tuesday. This move was predominantly driven by fresh shorts entering the market, with the gross short increasing by 28,578 lots over the week.
Last month the EIA forecast that 2024 US output would grow by around 190 b/d to 13.11m b/d. US output has surprised to the upside in recent months, which has contributed to the broader weakness seen in the oil market.
