By Adedapo Adesanya
Oil prices dropped about 4 per cent on Monday as weak manufacturing data in several countries weighed on the demand outlook.
Brent crude futures fell $3.94 or 3.8 per cent to settle at $100.03 a barrel while the US West Texas Intermediate (WTI) crude fell $4.73 or 4.8 per cent to settle at $93.89 a barrel.
The market sentiment at the start of this month was one of concern about the pace of global oil demand across the United States, Europe and Asia struggled for momentum in July over flagging global demand.
In China, the world’s largest oil importer, factory activity unexpectedly contracted and its manufacturing Purchasing Managers’ Index (PMI) improved only marginally in July and was well below expectations.
In China, COVID flare-ups in July led to an unexpected contraction in factory activity, according to data from the Chinese National Bureau of Statistics.
Per the Caixin China General Manufacturing PMI, the rate of improvement in China’s business conditions eased in July from a 13-month high in June and was only marginal.
Weak economic data from China rekindled fears about an economic slowdown in major economies and importers of crude, which could weigh on oil demand going forward.
In the US, the Institute for Supply Management (ISM) said on Monday that its index of factory activity dipped to 52.8 last month, the lowest reading since June 2020, when the sector was pulling out of a COVID-19-induced slump. The ISM PMI index was at 53.0 in June. A reading above 50 indicates expansion in manufacturing, which accounts for 11.9 per cent of the US economy.
PMI readings were also weaker in July than in June in the major Eurozone countries and in South Korea.
In the Eurozone, S&P Global’s final manufacturing Purchasing Managers’ Index (PMI) fell to 49.8 in July from June’s 52.1, its first time below the 50 mark separating growth from contraction since June 2020.
On Wednesday, traders and market analysts will be watching the Organisation of the Petroleum Exporting Countries and its allies, OPEC+ monthly meeting on August 3, the first after the group decided to have all the 2020 cuts rolled back by the end of this month.
While OPEC+ aimed to have fully unwound its record output cuts by this month, data showed the group as of June was still almost 3 million barrels per day short of its output target as some producing countries like Nigeria struggle to bring wells back on line.
Also weighing on prices was a rise in Libyan oil production, which hit 1.2 million barrels per day, up from 800,000 barrels per day on July 22, after the lifting of a blockade on several oil facilities.
Dipo Olowookere