Oil prices continued to face downward pressure on Tuesday as concerns grew about weak demand, especially from China, due to supply disruptions in Libya and the Middle East. Crude oil futures fell, reflecting bearish sentiment in the market despite some supporting factors. Light crude oil futures are trading at $72.36, down $1.19 or -1.62%.
China’s Economy Slows
China’s economic indicators have raised alarm bells about oil demand. The country’s manufacturing PMI fell to a six-month low in August, while new export orders fell for the first time in eight months. In addition, new home prices rose at their weakest pace this year, further highlighting the economic challenges facing the world’s largest crude oil importer.
OPEC production boost
OPEC+ is set to boost oil production by 180,000 barrels per day in October, gradually lifting previous production cuts. Meanwhile, Saudi Arabia is expected to cut crude oil prices for Asian buyers in October, with estimates ranging from 50 to 70 cents per barrel for Arab Light crude. These moves could exert additional downward pressure on oil prices.
Adding to the downward outlook, U.S. oil consumption slowed to its lowest seasonal levels since the pandemic. The drop in demand from the world’s largest oil consumer is exacerbating global demand concerns.
The short-term outlook for crude oil prices remains bearish. The combination of weak Chinese demand, increased OPEC+ production and slowing U.S. consumption outweighs the bullish factors of supply disruptions in Libya and the Middle East. Traders should expect prices to remain volatile, with a higher probability of further declines, especially if WTI fails to maintain support above $70 per barrel.
Saudi oil prices expected to cut Asia in October
Deteriorating refining margins in China and the wider Asian region and weak Dubai benchmark prices could prompt the world’s top crude exporter, Saudi Arabia, to lower the loading price of crude to Asia in October.
Saudi Aramco, the world’s largest crude oil exporter, is expected to cut the official selling price for all grades of crude to Asia in October, according to a survey of five refiners. Three expect the price of leading Saudi crude, Arabian Light, to be $0.50 to $0.70 per barrel below September prices. A $0.70 cut would see Arab Light cost Asian refiners $2.00 a barrel above the Amman/Dubai average.
The Oman/Dubai average is the benchmark against which crude exports from the Middle East to Asia are priced.
According to refiners, the expected decline in Arab Light crude prices and heavier grades prices may track Dubai’s weaker prices in August.
However, other refiners expected fixed or slightly variable Saudi crude prices for Asia for October in light of some strength in Dubai prices in the final week of the August trading window.
Saudi Arabia usually announces the official selling prices for the following month around the fifth of each month and does not comment on pricing.
Regardless of the trend in Dubai’s benchmark index, Saudi Arabia’s official selling prices for next month could be weighed down by weak refining margins in Asia, especially in China, according to refiners polled by Reuters.
Overall, refiners expect minor changes in Saudi crude prices for Asia, but they are all expected to be lower compared to September prices.
Last month, Saudi Aramco raised the price of its light crude for Asian customers for the first time in three months. Global supply from Saudi Arabia and the Middle East for October could be plentiful
Chinese demand fears and falling stocks weigh on oil
Oil futures fell on Tuesday, extending recent losses, amid concerns about a possible slowdown in demand from China, a major importer, along with the possibility of increased supply from major producers.
China reported on Monday that new export orders fell for the first time in eight months in July and that new home prices rose in August at their weakest pace this year.
North Sea Brent crude fell more than 2%, with European and Asian stocks tumbling. A series of indicators, including the latest developments in manufacturing, highlighted the weakness of China’s economy, the world’s second-largest economy after the United States.
China’s only plan for recovery seems to be to export its way out of recession,” said John Evans, an analyst at oil brokerage BVM. However, external demand is faltering in the face of a stuttering global economy at best.”
Stock markets mostly fall due to China’s problems
Traders had been waiting for U.S. manufacturing figures on Tuesday ahead of major US jobs data on Friday, hoping for a clearer picture of the pace of U.S. interest rate cuts scheduled to begin this month.
Wall Street opens its doors on Tuesday after a long weekend in the United States. In the foreign exchange market, the yen strengthened after Bank of Japan President Kazuo Ueda confirmed his intention to raise interest rates again if inflation and the economy match his expectations.
The bank’s abrupt decision to raise interest rates in July, hours before the Fed signaled it was ready to start cutting U.S. borrowing costs. led to a massive dismantling of the so-called “yen carrying trade” in which investors used cheap currency to buy high-yielding assets such as stocks.
