. Oil Prices Dip on China Growth Concerns - 19 June 2023

Oil Prices Dip on China Growth Concerns

Oil Prices Dip on China Growth Concerns

19 Jun 2023

Oil prices drop amid China growth concerns.

As concerns about China’s economy trumped OPEC+ output cutbacks and the seventh straight decline in the number of oil and gas rigs operating in the United States, oil prices dropped on Monday.

 By 1319 GMT, Brent crude was down 17 cents, or 0.2%, to $76.44 a barrel, while West Texas Intermediate (WTI) crude in the United States was down 27 cents, or 0.4%, to $71.51.

Last week, both contracts finished with gains of more than 2%.

The Chinese economy is sailing against strong headwinds, according to Tamas Varga, an oil analyst at PVM. Retail sales and industrial output both fell short of expectations in May, indicating that the real estate market has not recovered from last year’s downturn.

After May statistics last week revealed the post-COVID rebound in the second-largest economy in the world was stalling, several major banks lowered their projections for China’s GDP growth in 2023.

Following a comparable decrease in the interest rates on medium-term policy loans last week to support a weak economic recovery, China is expected to lower its benchmark loan rates on Tuesday.

 According to sources cited by Reuters, China will continue to implement stimulus measures to boost it’s slowing economy this year but worries over debt and capital flight will keep the focus on the consumer and private sectors.

 The improvements from last week were nonetheless helped by China’s refinery throughput, which increased in May to its second-highest level ever, and by U.S. energy companies cutting the number of active oil and natural gas rigs for the seventh week in a row for the first time since July 2020.

The number of oil and gas rigs, a leading predictor of future production, dropped by eight to 687 in the week ending June 16—it was at its lowest level since April 2022.

Prices were impacted by rising Iranian oil shipments as well. Despite U.S. sanctions, Iran’s crude exports and oil production have reached historic highs in 2023, according to consultants, shipping statistics, and a source familiar with the situation, increasing the world supply at a time when other suppliers are reducing output.

 This month, the Organisation of the Petroleum Exporting Countries (OPEC) and allies, notably Russia, reached an agreement on a new oil production accord. Saudi Arabia, the group’s top producer, has promised to drastically reduce its output in July.