Adedapo Adesanya
By Adedapo Adesanya
Crude oil prices finished lower on Monday as hopes for Chinese demand faded, causing Brent to shed 34 cents or 0.4 per cent to trade at $84.46 per share, with the US West Texas Intermediate (WTI) crude going down by 53 cents or 0.65 per cent to $80.72 a barrel.
Market analysts warned that China’s recovery, which has been pegged to help the oil market, may not happen again as the country has a lot of crude in storage.
There had been hope that China’s economy will return to pre-pandemic levels of demand after expectations show that the country will help the market this year. However, recent headline numbers for crude imports pointed to robust oil demand. Analysts warned that much of that supply has been stockpiled rather than turned into finished products.
The nation’s economic recovery continues to show signs of strain this year through weak indicators across manufacturing and infrastructure sectors, weighing on the outlook for commodities.
China’s central bank, the People’s Bank of China (PBOC), trimmed its one-year lending rate by 10 basis points and left its five-year rate unmoved. This move surprised analysts who had expected cuts of 15 basis points to boost recovery in the world’s second-largest economy.
Gains in crude prices through the summer were driven by the tight balance between crude oil supply and high demand, especially in the US summer driving season, which ends on the first of September, and from Latin America.
At the same time, the Organisation of the Petroleum Exporting Countries and its allies (OPEC+) led by Saudi Arabia and Russia, have cut production to better match demand, especially from China, which has yet to meet expectations for post-pandemic recovery.
Saudi Arabia hints that its production would remain around 9 million barrels per day, a cut of about 1 million barrels, through the month of September.
Also breathing down the neck of the market is the possibility of further increases in US interest rates, which has overshadowed the demand outlook.
However, support came as the US Dollar weakened on Monday. A weaker greenback makes oil purchases less expensive for holders of other currencies, potentially boosting demand.
