Crude prices lose steam on China growth worries; where are oil rates headed?

Brent crude futures fell 17 cents, or 0.2%, to $76.44 a barrel while US West Texas Intermediate (WTI) crude lost 27 cents, or 0.4%, to $71.51. Last week, both benchmarks posted gains of more than 2%. Back home, on the Multi Commodity Exchange (MCX), crude oil futures were last trading 0.31% higher at ₹5,895 per bbl. 

The gasoline and diesel in contrast witnessed some gains on Monday as some refinery outages pushed up the premium on fuels. Consequently, the demand for certain Middle Eastern crude oils has also risen as a result of these price increases and supply disruptions in other regions.

The China Hope

In the last week, the oil prices ended higher with the expectation of increased demand by China. The state council meeting on Friday by China didn’t reveal much about the plans for the revival of the world’s largest crude importer.

During the initial six months of the year, the price of oil has retreated due to several factors. One of the main reasons is that China’s rebound from the “Covid Zero” strategy fell short of high expectations, causing a setback in oil demand. Additionally, there has been an ample supply of oil worldwide, including significant contributions from Russia.

OPEC+ supply cuts

The slowdown in economic growth of China and US have impacted the oil prices this year. The benchmark Brent oil is trading above $70 per barrel which is far below the peaks of over $100 last year.

To counterbalance the declining oil prices, the Organization of Petroleum Exporting Countries (OPEC) and its allies have implemented measures to reduce production. As part of these efforts, Saudi Arabia has voluntarily agreed to reduce its daily output by 1 million barrels in the month of July.

What lies ahead?

“We are back to focusing on Russian oil supply and the slowing of the Chinese economy,” Arne Lohmann Rasmussen, head of research at Global Risk Management told Bloomberg News. “There is a growing risk that the $75 floor will not hold, and that the rise in Brent above $76 last week was due to short-covering,” Rasmussen added.

The oil market is expected to become tighter in the second half of the year as per the forecasts of OPEC and the Paris-based International Energy Agency. However, it’s interesting to know that the amount of crude oil stored in a US big storage hub in Cushing, Oklahoma, has reached its highest level in the past two years.

(With agency inputs)

Updated: 19 Jun 2023, 10:25 PM IST