Adedapo Adesanya
By Adedapo Adesanya
Oil prices finished lower on Monday on worries about China’s faltering economic recovery and a stronger US Dollar as well as supply resumed from a key terminal in Nigeria.
Brent crude futures lost 60 cents or 0.69 per cent to trade at $86.21 a barrel, and the US West Texas Intermediate (WTI) crude futures depleted by 68 cents or 0.82 per cent to quote at $82.51 a barrel.
The market is losing hope that the Chinese economy will return to pre-pandemic levels of demand after expectations show that the country will help the market this year.
Recent headline numbers for crude imports pointed to robust oil demand, however, though analysts warned that much of that supply had been stockpiled rather than turned into gasoline and diesel.
The nation’s economic recovery continues to show signs of strain this year through weak indicators across manufacturing and infrastructure sectors, weighing on the outlook for commodities.
On Tuesday, China will release industrial production data, including numbers for the refining industry.
The US Dollar index extended gains after a slightly bigger increase in US producer prices in July. This development lifted Treasury yields despite expectations the US Federal Reserve is at the end of a campaign of hiking interest rates.
A stronger US Dollar pressures oil demand by making the commodity more expensive for buyers holding other currencies.
In Nigeria, Shell said the exports of Nigeria’s Forcados crude oil resumed on Sunday, roughly a month after loadings of the medium sweet grade were suspended because of a potential leak at the export terminal.
The suspension contributed to Nigeria becoming the second-biggest contributor to the drop in OPEC crude oil output in July.
Meanwhile, support for oil prices also came from the International Energy Agency (IEA), which said in its latest monthly report it expected even higher prices this year. The agency also said, however, that it expected a sharp shrinkage in demand in 2024 due to what it called economic headwinds.
“The global economic outlook remains challenging in the face of soaring interest rates and tighter bank credit, squeezing businesses that are already having to cope with sluggish manufacturing and trade,” the IEA said in its report.
At the same time, however, the IEA acknowledged the tightening supply of oil thanks to cuts from the Organisation of the Petroleum Exporting Countries (OPEC), which could cause global stock drawdowns of 2.2 million barrels daily in the second half of the year. This, in turn, could lead to higher prices still.
On the geo-political front, merchant ships around the Black Sea remained backed up in lanes on Monday as ports struggled to clear backlogs amid growing unease among insurers and shipping companies a day after a Russian warship fired warning shots at a cargo vessel.
