Oil Prices Soar Despite Chinese Economic Worries

By Adedapo Adesanya

Oil prices settled higher on Friday, with Brent crude futures growing by 56 cents or 0.8 per cent to $74.90 per barrel, as the US West Texas Intermediate crude (WTI) improved by 78 cents or 1.1 per cent to $70.64 a barrel.

However, the two oil benchmarks posted their fourth straight quarterly loss as investors worried that sluggish global economic activity could affect fuel demand.

Prices have been under pressure from rising interest rates in key economies and a slower-than-expected recovery in Chinese manufacturing and consumption.

China’s factory activity declined for a third straight month in June, and weakness in other sectors deepened, according to official surveys published on Friday.

This added pressure for authorities to do more to shore up growth as demand falters at home and abroad.

The world’s second-largest economy grew faster than expected in the first quarter, largely due to a strong post-COVID rebound in consumption, but policymakers have been unable to sustain the momentum in the second quarter.

Services sector activity for June also recorded its weakest reading since China abandoned its strict COVID curbs late last year, data from the National Bureau of Statistics showed.

However, signs of strengthening economic activity and sharp declines in the US oil inventories last week offered some support.

A US Commerce Department report also added support as it showed annual inflation rising last month at its slowest pace in two years.

Prices also drew support from Saudi Arabia’s plans to cut output by a further 1 million barrels per day in July in addition to a broader deal by the Organisation of the Petroleum Exporting Countries and its allies (OPEC+) to limit supply into 2024.

Market analysts noted that despite the announcements of two fresh rounds of cuts from OPEC+/Saudi Arabia, crude prices have largely remained below $80 a barrel.

This is because the market has been driven less by fundamentals and more by macroeconomic concerns.

US energy firms this week cut the number of oil and natural gas rigs operating for a ninth week in a row for the first time since July 2020, energy services firm Baker Hughes said on Friday.