By Adedapo Adesanya
Oil dipped more than 3 per cent on Monday as the market was faced with weak economic data from China and an oversupply in the United States as a result of lower demand.
Consequently, the price of the Brent crude dropped $2.34 or 3.1 per cent to trade at $73.07 per barrel, while the West Texas Intermediate (WTI) lost $2.53 or 3.4 per cent to settle at $71.42 per barrel.
In the world’s largest exporting nation, China, factory activity growth slipped sharply in July as demand contracted for the first time in more than a year, in part on high product prices.
The weaker results in the private survey, mostly covering export-oriented and small manufacturers, broadly aligned with its weakest manufacturing sector expansion in 15 months, according to the Caixin China General Manufacturing Purchasing Managers’ Index (PMI).
In the world’s largest consuming and producing country, the US, manufacturing activity also showed signs of slowing.
The pace of growth slowed for the second straight month as spending rotates back to services from goods and shortages of raw materials persist, according to data from the Institute for Supply Management (ISM).
The ISM’s index of national factory activity fell to 59.5 last month, the lowest reading since January, from 60.6 in June.
The weaker economic data and resurgence of COVID cases combined with the higher production from the Organisation of the Petroleum Exporting Countries and allies (OPEC+) group to weigh on oil prices at the start of August.
From this month, the alliance is putting another 400,000 barrels per day on the market.
This is as a survey found out that the 13-member OPEC alone is estimated to have pumped in July its highest oil volumes since April 2020—at 26.72 million barrels per day up by up 610,000 barrels per day from June.
The market was also impacted by the highly infectious Delta variant which continues to cloud the outlook for mobility but the US has said it will not go into another lockdown.
Meanwhile, China has seen a small increase in cases, Thailand is set to expand its quasi-lockdown measures, while infections surged in Australia.
Even as cases continue to climb globally, analysts said higher vaccination rates would limit the need for the harsh lockdowns that gutted demand during the peak of the pandemic last year.
On the geopolitics front, tension is expected to build ahead as the US and Britain said on Sunday they believed Iran carried out an attack on an Israeli-managed petroleum product tanker off the coast of Oman on Thursday that killed a Briton and a Romanian.
This is happening as the two nations are seeking to revive a nuclear deal that, if successful, may pave the way for Iran to flood the market with more oil.
