Oil extends losses as traders weigh China outlook, Iran supply

Oil extended losses at the start of the week as traders weighed concerns about Chinese demand and the prospect for more Iranian supply.

West Texas Intermediate dropped near $88 a barrel, falling as much as 4.3 per cent, with markets selling off as China’s surprise cut in key interest rates boosts support for an economy hit by virus lockdowns and property woes. The nation’s apparent oil demand last month was about 10 per cent lower year-on-year.

“We’re really seeing where China’s economy is at and it’s a lot less rosy than people had hoped, consumption is going to be lower than anticipated, certainly for oil,” Sucden Financial head of research Geordie Wilkes said by phone.

After over a year of stalled and cancelled talks, a nuclear deal with Iran looks more likely on Monday. A spokesperson for the Iranian foreign ministry said there could be a basis for a signed agreement “in the very near future,” while Foreign Minister Hossein Amirabdollahian said in a separate briefing that the country would inform the European Union tonight of its position while striking a more conciliatory tone than in recent months.

Some of the potential additional flow of Iranian oil to the global market will have already been priced in said Saxo Bank head of commodity strategy Ole Hansen, but “any additional supply news will give ammunition to funds selling oil as a hedge against an economic slowdown,” he said.

Crude has ticked lower over the past couple of months on concerns about an economic slowdown, shedding all the gains put on following Russia’s invasion of Ukraine. Money managers have cut their bullish bets on WTI to the lowest in over two years, according to the Commodity Futures Trading Commission.

China’s economic recovery unexpectedly weakened in July as fresh Covid-19 outbreaks impacted consumer and business spending. Industrial output rose 3.8 per cent from a year ago, lower than June’s 3.9 per cent and missing economists’ forecast of a 4.3 per cent increase. Oil refining also fell as plants shut for maintenance.

Prices

  • WTI for September delivery slipped 4.1 to $88.33 barrel on the New York Mercantile Exchange at 10:58 a.m. in London.
  • Brent for October settlement fell 4% to 94.21 a barrel on the ICE Futures Europe exchange.
  • Brent’s prompt spread was $1.05 in backwardation, compared with $4.01 a month earlier.

After over a year of stalled and cancelled talks, a nuclear deal with Iran looks more likely on Monday. A spokesperson for the Iranian foreign ministry said there could be a basis for a signed agreement “in the very near future,” while Foreign Minister Hossein Amirabdollahian said in a separate briefing that the country would inform the European Union tonight of its position while striking a more conciliatory tone than in recent months.

Some of the potential additional flow of Iranian oil to the global market will have already been priced in said Saxo Bank head of commodity strategy Ole Hansen, but “any additional supply news will give ammunition to funds selling oil as a hedge against an economic slowdown,” he said.

Crude has ticked lower over the past couple of months on concerns about an economic slowdown, shedding all the gains put on following Russia’s invasion of Ukraine. Money managers have cut their bullish bets on WTI to the lowest in over two years, according to the Commodity Futures Trading Commission.

China’s economic recovery unexpectedly weakened in July as fresh Covid-19 outbreaks impacted consumer and business spending. Industrial output rose 3.8 per cent from a year ago, lower than June’s 3.9 per cent and missing economists’ forecast of a 4.3 per cent increase. Oil refining also fell as plants shut for maintenance.

© 2022 Bloomberg L.P.

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