Oil Prices Tumble as China’s Economic Concerns Overshadow OPEC+ Cuts

Title: Oil Prices Dip Amid Concerns Over China’s Economy and OPEC+ Output Cuts

LONDON, June 19 (Reuters) – Oil prices experienced a slight decline on Monday as worries 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, the international benchmark, dropped by 17 cents, or 0.2%, to $76.44 a barrel by 1319 GMT, while U.S. West Texas Intermediate (WTI) crude fell by 27 cents, or 0.4%, to $71.51.

Despite the decline, both contracts had recorded gains of over 2% during the previous week.

Analysts have expressed concerns about China’s economy, with Tamas Varga, an oil analyst at PVM, stating that “(China’s) economy is navigating through powerful headwinds.” The property market has not fully recovered from last year’s slump, and in May, both retail sales and industrial output fell below expectations.

Several major banks have revised their forecasts for China’s 2023 gross domestic product (GDP) growth following disappointing data in May, indicating that the post-COVID recovery in the world’s second-largest economy is faltering.

To support the struggling economic recovery, China is expected to reduce its benchmark loan rates on Tuesday, following a similar reduction in medium-term policy loans last week. However, concerns about debt and capital flight will likely limit the stimulus measures to the consumer and private sectors.

Despite the challenges, China’s refinery throughput increased in May, reaching its second-highest total on record, which contributed to the gains observed last week. Additionally, U.S. energy firms have reduced the number of working oil and natural gas rigs for seven consecutive weeks, marking the first time since July 2020.

The oil and gas rig count, which serves as an early indicator of future output, dropped by eight to 687 in the week ending June 16, representing the lowest total since April 2022.

Furthermore, rising Iranian oil exports have also impacted prices. Despite U.S. sanctions, Iran’s crude exports and oil output have reached record highs in 2023, according to consultants, shipping data, and a source familiar with the matter. This increase in supply from Iran adds to the global market at a time when other producers are limiting their output.

In an effort to stabilize oil prices, 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, has also pledged to make a significant cut to its output in July.

Overall, the combination of concerns about China’s economy, rising Iranian oil exports, and the OPEC+ output cuts has contributed to the slight dip in oil prices observed on Monday.

Reporting by Ahmad Ghaddar Additional reporting by Katya Golubkova in Tokyo and Emily Chow in Singapore Editing by David Goodman, Kirsten Donovan

Our Standards: The Thomson Reuters Trust Principles.

What factors may contribute to the temporary nature of the negative effect on oil prices from China’s economy and the ongoing OPEC+ output cuts

Ond-largest economy may be slower than expected.

Additionally, the ongoing output cuts by the OPEC+ alliance, which consists of the Organization of the Petroleum Exporting Countries (OPEC) and their allies, have been overshadowed by concerns about China. The alliance has been gradually increasing oil production to meet rising global demand as economies reopen, but fears of a slowdown in China’s economy could deter the bullish sentiment in the market.

Furthermore, the decrease in the number of oil and gas rigs operating in the United States has also failed to offset concerns about China. The decline in rig count suggests a potential decrease in future oil production, which typically supports oil prices. However, the market’s focus on China’s economic outlook has limited the positive impact of this development.

Despite these concerns, it is worth noting that both Brent crude and U.S. West Texas Intermediate (WTI) crude had registered significant gains during the previous week. This indicates that the market sentiment remains somewhat positive, and any negative effect from China’s economy and OPEC+ output cuts may be temporary.

In summary, oil prices have experienced a slight decline due 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. The revised forecasts for China’s GDP growth and disappointing economic data have raised doubts about the pace of the country’s post-COVID recovery. However, it is important to acknowledge that oil prices had previously recorded gains, suggesting that market sentiment remains relatively positive despite these concerns.