By Adedapo Adesanya
Oil declined on Wednesday on worries that the global economy would slow further with renewed restrictions to curb COVID-19 in China, causing the price of the Brent crude futures to drop $2.82 or 2.8 per cent to $96.49 per barrel.
Also, the price of the United States West Texas Intermediate (WTI) crude futures depreciated by $2.09 or 2.3 per cent to sell at $89.55 a barrel.
The market was hit at the midweek China’s factory activity extended declines in August due to new COVID infections, the worst heat wave in decades, and an embattled property sector that weighed on production, suggesting the economy will struggle to sustain momentum.
The official manufacturing purchasing managers’ index (PMI) rose to 49.4 in August from 49.0 in July, the country’s National Bureau of Statistics (NBS) said on Wednesday.
While the PMI slightly beat expectations, it remained below the 50-point mark that separates contraction from growth for the second straight month, suggesting protracted weakness in the sector.
This indicated that the world’s second-largest economy is struggling to emerge from the sluggish growth seen in the June quarter, with risks darkening the outlook as high inflation and the Ukraine war hit external demand.
Parts of China’s southern city of Guangzhou imposed COVID curbs on Wednesday, joining the tech hub of Shenzhen in battling flare-ups.
Market analysts note that the weakness coming out of China has played a significant role in lowering prices, just as there are fears of demand destruction across the West as interest rates rise and inflation concerns grip Western economies.
This outweighed bullish news that showed that US crude stocks fell by 3.3 million barrels, the U.S. Energy Information Administration said Wednesday, however, petrol (gasoline) stocks were down 1.2 million barrels.
Amid calls for cuts, the Joint Technical Committee of the Organisation of the Petroleum Exporting Countries (OPEC) and allies, together called OPEC+, said it now sees an oil surplus this year of 400,000 barrels per day, up 100,000 barrels per day from its forecast a month earlier.
The ministers are next due to meet on September 5 amid weakening demand in Asia that spurred Saudi Arabia to lower its official selling prices to that region.
Modupe Gbadeyanka