Oil Prices Dip As Concerns Over China's Economy Overshadow OPEC+ Cuts

Oil prices experienced a decline on Monday as concerns regarding China's economy took precedence over OPEC+ output cuts and a reduction in the number of operating oil and gas rigs in the United States. 

Brent crude settled down by 48 cents, or 0.6 per cent, reaching USD 76.13 per barrel, while US West Texas Intermediate (WTI) crude dropped by 49 cents, or 0.7 per cent, to USD 71.29 at 1935 GMT. The trading volumes remained thin due to a US holiday. It is worth noting that both contracts had ended the previous week with gains exceeding 2 per cent.

Several major banks have revised their forecasts for China's 2023 gross domestic product (GDP) growth following the release of May data last week, indicating a faltering recovery in the world's second-largest economy from the impacts of the COVID-19 pandemic. In an attempt to bolster the shaky economic recovery, China is expected to reduce its benchmark loan rates after implementing a similar rate cut on medium-term policy loans last week.

However, despite the downward pressure on oil prices from China's economic concerns, some positive factors have influenced the market. China's refinery throughput in May reached its second-highest level on record, contributing to the gains observed last week. Additionally, US energy firms have reduced the number of working oil and natural gas rigs for seven consecutive weeks, the first such decline since July 2020. These factors might have supported the prices to some extent.

Nevertheless, the rise in Iranian oil exports has exerted additional downward pressure on prices. Despite US sanctions, Iran's crude exports and oil output have reached record highs in 2023, according to consultants, shipping data, and a source familiar with the matter. This increase in Iranian supply adds to the global oil supply at a time when other major producers are limiting their output.

It is worth noting that the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, reached a new oil output deal earlier this month. Moreover, Saudi Arabia, the largest producer within the group, pledged to implement a deep cut to its oil output in July. These actions were intended to stabilise oil prices and balance the market.

(Inputs from Reuters)