Oil Slides as China’s Concerns Outweigh Drop in US Stockpiles

By Adedapo Adesanya

Oil settled lower on Wednesday despite a large drawdown in crude stocks in the United States as investors weighed worries about China’s embattled economy.

Brent crude futures fell by $1.44 or 1.7 per cent to $83.45 a barrel, while the US West Texas Intermediate crude (WTI) depreciated by $1.61 or 2 per cent to $79.38 per barrel.

The Energy Information Administration (EIA) reported an inventory decline of 6 million barrels for the week to August 11, in the US, in contrast to a build of 5.9 million barrels for the previous week, which in turn followed the biggest inventory draw in years, at 17 million barrels for the last week of July.

A day earlier, the American Petroleum Institute estimated crude oil inventories had shed 6.2 million barrels in the week to August 11.

Although a decline in crude stockpiles would boost price, it has been a tough week for the black gold which has been trending lower on the latest economic data from China.

These figures suggested a slowdown in growth, based on industrial production and retail sales figures for July.

The numbers have prompted concerns that China may struggle to meet its growth target of about 5 per cent for the year unless there are more fiscal stimulus and government help.

At the same time, refinery runs data from China, as well as suggested demand for oil, remains strong and growing. Refiners ramped up processing rates last month, the data said, with the average daily number higher both than the average for June and the average for July 2022.

Analysts are concerned that China’s faltering economy will weigh on demand and offset tight supply in the oil market. They noted that with the disappointing turn in China’s economic data dominating headlines lately, sentiments around oil prices are being kept in check.

Regardless of this, the Organisation of the Petroleum Exporting Countries and allies (OPEC+) and the International Energy Agency (IEA) are banking on China, the world’s biggest oil importer, to boost crude demand over the rest of 2023.

Oil also fell after the release of the US Federal Reserve’s meeting minutes showed officials of the US central bank were divided over the need for more interest rate hikes at their last meeting.

Higher interest rates increase borrowing costs for businesses and consumers, which could slow economic growth and reduce oil demand.