Oil prices experienced a decline on Monday, June 19, as concerns about China’s economy overshadowed the impact of OPEC+ output cuts and the continuous decrease in the number of oil and gas rigs operating in the United States. Brent crude settled at $76.13 a barrel, down 0.6% or 48 cents, while U.S. West Texas Intermediate (WTI) crude dropped 0.7% or 49 cents to $71.29 at 1935 GMT. The trading volumes were thin due to a U.S. holiday.
Despite both contracts ending the previous week with gains of over 2%, several major banks have revised down their forecasts for China’s 2023 growth in gross domestic product. The May data revealed that the post-COVID recovery in the world’s second-largest economy was faltering. In response, China is expected to cut its benchmark loan rates on Tuesday, following a similar reduction in medium-term policy loans last week, in an effort to support its fragile economic recovery.
The oil market is closely monitoring the global economy for signs of improvement. Jorge Leon, Rystad Energy’s senior vice president, stated that much will depend on China’s economic performance in the second half of the year, the effectiveness of the country’s recently announced stimulus measures, and the ability of the U.S. and Europe to avoid an economic slowdown amid interest rate hikes.
Despite the concerns about China’s economy, there were some positive factors supporting oil prices. China’s refinery throughput increased in May to its second-highest total on record, contributing to the gains of the previous week. Additionally, U.S. energy firms reduced the number of working oil and natural gas rigs for the seventh consecutive week, marking the first time since July 2020.
However, rising Iranian oil exports put downward pressure on prices. Despite U.S. sanctions, Iran’s crude exports and oil output reached record highs in 2023, adding to global supply at a time when other producers are limiting output.
The Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, recently reached a new oil output deal. Saudi Arabia, the group’s largest producer, also pledged to make a significant cut to its output in July.
While sentiment-wise, traders in the crude oil market are bearish, Daniel Ghali, a commodity strategist at TD Bank, highlighted that the analyst community still expects significant deficits in the coming months.
Reporting by Nia Williams in British Columbia, with additional reporting by Ahmad Ghaddar in London, Katya Golubkova in Tokyo, and Emily Chow in Singapore. Editing by David Goodman, Kirsten Donovan, Lisa Shumaker, and Alison Williams.
Source: Reuters
iea oil market report
N rates in order to stimulate lending and boost economic activity.
The recent decline in oil prices on June 19th can be attributed to concerns about China’s economy overshadowing the impact of OPEC+ output cuts and the decrease in the number of oil and gas rigs operating in the United States. Brent crude settled at $76.13 a barrel, down 0.6%, while U.S. West Texas Intermediate (WTI) crude dropped 0.7% to $71.29.
This decline in oil prices occurred despite both contracts ending the previous week with gains of over 2%. The reason behind this decline is the revised forecasts for China’s 2023 growth in gross domestic product by several major banks. The May data indicated that the post-COVID recovery in China’s economy, the world’s second-largest economy, was faltering. As a response, China is expected to cut its benchmark loan rates to stimulate lending and boost economic activity.
It is worth noting that the trading volumes on June 19th were thin due to a U.S. holiday, which may have also contributed to the relatively small drop in oil prices.
China’s economic concerns taking precedence over OPEC+ cuts leading to a drop in oil prices signifies the nation’s current predicament. As one of the world’s largest consumers of oil, China’s economic struggle definitely holds sway over the global market.