Adedapo Adesanya
By Adedapo Adesanya
Oil plunged more than 3 per cent on the back of disappointing economic data from the world’s largest crude oil importer and the world’s second-largest crude oil consumer, China.
On Monday, the Brent crude futures ended the day 3.6 per cent or $3.57 lower at $94.58 per barrel while the United States West Texas Intermediate (WTI) crude settled $3.17 or 3.4 per cent lower at $88.92 per barrel.
China’s central bank cut lending rates to light a fire under demand, as its July economic data soured on the back of China’s restrictive zero-Covid policy. Further dragging down China’s July economic data is its property crisis, which saw property investments fall by 12.3 per cent in July—the fastest rate this year.
Both the disappointing economic data and the central bank rate cut came as a surprise to the market. Chinese policymakers now expect China to miss its targeted economic growth rate of 5 to 5.5 per cent in the second half of the year.
China’s oil refinery data was also a disappointment, with its refinery output falling to 12.53 million barrels per day—the lowest level since March 2020 and 8.8 per cent lower than processing rates in July 2021 due to unplanned shutdowns at state-run refineries such as Sinopec and PetroChina and shrinking refining margins.
Also in the mix is a new round of tax probes that the Chinese government is prepared to launch on private teapot refiners, which account for 20 per cent of China’s crude oil imports, another potential trigger for refinery slowdowns.
China imports more than half of the oil it consumes, mainly from Saudi Arabia, Russia, Iraq, and Oman.
The Iran factor also played into oil prices on Monday, with Iran suggesting that it could find a way to agree on a nuclear deal “in the near future” if the US would consider its suggestions.
Oil supply could rise if Iran and the United States accept an offer from the European Union, which would remove sanctions on Iranian oil exports, analysts said.
Iran will respond to the European Union’s final draft text to save a 2015 nuclear deal, its foreign minister said, calling on the US to show flexibility to resolve three remaining issues.
The US Dollar index, meanwhile, rose near to the middle of its range this month.
Oil is generally priced in US Dollars, so a stronger greenback makes the commodity more expensive to holders of other currencies.
