SINGAPORE, June 19 (Reuters) – Global oil prices experienced a decline of more than 1% on Monday, reversing the gains made in the previous week. The drop in prices was primarily driven by concerns over China’s economy, which 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, a benchmark for global oil prices, fell by 78 cents, or 1%, to trade at $75.83 a barrel by 0655 GMT. It had previously dropped as much as $1.27 to $75.34. Similarly, U.S. West Texas Intermediate (WTI) crude declined by 76 cents, or 1.1%, to $71.02, after experiencing a decrease of $1.15 to $70.63.
The previous week had seen Brent crude gain 2.4% and WTI rise by 2.3%. However, concerns regarding China’s economic uncertainties led to the sell-off in oil markets. Analysts, such as Tina Teng from CMC Markets, attributed the decline to questions surrounding China’s economy ahead of The People’s Bank of China’s (PBOC) decision on its loan prime rates (LPR) for the week.
Several major banks have revised their 2023 gross domestic product growth forecasts for China following disappointing May data, which indicated a faltering post-COVID recovery in the world’s second-largest economy. It is widely expected that China will cut its benchmark loan prime interest rates on Tuesday, following a similar reduction in medium-term policy loans last week, in an effort to support the struggling economic recovery.
While concerns over debt and capital flight may limit the effectiveness of stimulus measures, China’s refinery throughput increased in May to its second-highest total on record, contributing to the gains observed in 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.
The oil and gas rig count, which serves as an early indicator of future output, fell by 8 to 687 in the week ending June 16, reaching its lowest level since April 2022.
In addition to China’s economic uncertainties, oil prices on Monday were also influenced by expectations that the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia (OPEC+), would face challenges in achieving compliance with production quotas. Edward Moya, a senior analyst at OANDA, highlighted comments made by Igor Sechin, the head of Russian energy major Rosneft (ROSN.MM), who suggested that the focus should be on monitoring oil export volumes rather than production. Sechin made these remarks at an economic forum on Saturday, emphasizing the need to consider the different sizes of each country’s domestic markets.
Earlier this month, OPEC+ reached an agreement on a new oil output deal, with Saudi Arabia, the group’s largest producer, pledging to make a significant cut to its output in July.
Overall, the decline in global oil prices on Monday can be attributed to concerns over China’s economy, the potential challenges in achieving compliance with production quotas by OPEC+ countries, and the continuous decrease in the number of oil and gas rigs operating in the United States. These factors outweighed the positive impact of OPEC+ output cuts and the gains observed in the previous week.
What factors contributed to the decline in global oil prices during the week?
Week.
The decline in global oil prices on Monday can be attributed to concerns over China’s economy, which overshadowed the impact of OPEC+ output cuts and the decrease in the number of oil and gas rigs in the United States. Brent crude, a global oil price benchmark, fell by 1% to $75.83 a barrel, while U.S. West Texas Intermediate (WTI) crude declined by 1.1% to $71.02.
The previous week had seen both Brent crude and WTI crude experience gains of 2.4% and 2.3% respectively. However, the sell-off in oil markets was driven by uncertainties surrounding China’s economy. Analysts, such as Tina Teng from CMC Markets, believe that the decline in oil prices was influenced by questions about China’s economic outlook ahead of The People’s Bank of China’s (PBOC) decision on its loan prime rates (LPR).
Several major banks have revised their 2023 gross domestic product growth forecasts for China following disappointing May data, indicating a slowdown in the post-COVID recovery of the world’s second-largest economy. It is anticipated that China will lower its benchmark loan prime interest rates on Tuesday, following a previous reduction in medium-term policy loans.
Therefore, the drop in global oil prices can be primarily attributed to concerns over China’s economic uncertainties, which overshadowed the impact of OPEC+ output cuts and the decrease in U.S. oil and gas rig activity.
It’s no surprise that oil prices are dipping amid China’s economic uncertainties, as they hold significant influence over global demand. While OPEC+ cuts may have provided some stability, the ongoing COVID-19 situation and economic tensions in China continue to weigh heavily on the oil market.
Despite OPEC+ cuts aiming to stabilize oil prices, China’s economic uncertainties prove to be the dominant force, causing a dip in oil prices. A reminder that even global efforts may succumb to the influence of a major economic player like China.