Oil Prices Fall as China Data Disappoints

Oil prices plummeted by more than $3 a barrel due to concerns about demand in China, the world’s top crude importer, and ahead of Iran’s response to a nuclear deal proposal that could increase the country’s oil exports.

According to government data, China’s economy unexpectedly weakened in July. Refinery output fell to 12.52M barrels per day, the lowest level since March 2020.

Brent crude futures were down $3.39, or 3.56%, to $94.56 a barrel at 0945 GMT, after down 1.5% on Friday.

After falling 2.3% the previous session, West Texas Intermediate crude was down $3.22, or 3.61%, at $88.77.

This year’s oil consumption should be 3.1M BPD. The prediction for the year’s second half has been revised downward due to “expectations of a return of COVID-19 limitations and persistent geopolitical uncertainty.” Those geopolitical uncertainties are a benign term for the Ukrainian conflict.

More intriguingly, OPEC assessed the difference between world oil demand and non-OPEC production for the current quarter at 28.27M BPD, which is what OPEC would need to supply to keep the market in balance.

Most OPEC has already and continues to fall short of its production targets. Then, at its most recent meeting earlier this month, OPEC+ decided to add a modest 100,000 BPD to total production. Traders were taken aback by this increase, which some took as a direct jab at Biden after the US president flew to the Middle East to request extra oil from Riyadh personally.

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Kazakh Oil Flowing

The Chinese government has quietly rebuked Moscow for the blockades, signaling that it will not allow Russian intervention in Kazakh oil supplies.

Kazakhstan produces under 2M barrels daily (BPD), accounting for around 2% of global oil output. Almost 80% goes to international markets via the Caspian Pipeline Consortium (CPC) pipeline. It connects the country’s largest oil supplies to Russia’s Black Sea port of Novorossiysk.

According to Russian authorities, a storm damaged 2/3 of loading facilities at Novorossiysk.

Only a small amount of Kazakh crude goes to China. However, the country is interested in seeing it reach worldwide markets. Without these shipments, oil prices would rise. Moreover, demand for global consumer goods would fall, and China’s export-oriented growth would suffer. Finally, Kazakhstan is a transit point for all three existing lines of the Central Asia-China gas pipeline, bringing crucial energy supplies.

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Oil Market Focus Shifts to Europe

The global economy’s resilience as Western nations face rapid inflation and China deals with a looming real estate crisis will be essential in influencing oil prices this week.

Because of contradicting economic signals, crude oil prices have been volatile recently. OPEC economists decreased their 2022 prediction for world oil demand in their monthly market report for August, citing inflation, continued pandemic limitations, and the crisis in Ukraine. The International Energy Agency, on the other hand, upped its demand projection in its monthly report, noting a shift in some economic sectors from expensive natural gas to less expensive oil.

Meanwhile, natural gas and gasoline futures continued to fall, indicating that inflationary pressures for US families were dropping.

Gasoline futures flow into forecourt pricing, and motorists in the United States have enjoyed many days of falling prices, with regular-grade gasoline falling 45 cents in only three weeks to $4.10 per gallon.

On the other hand, OPEC economists reduced their growth forecast for the Chinese economy for 2022 from 5.1 percent to 4.5 percent. Any further retraction would almost probably harm the price of oil.

Given geopolitical tensions with Russia, ongoing supply-chain concerns, and tight monetary policies, OPEC analysts have warned of the potential decline in the eurozone and the United Kingdom. Suppose inflation in the United Kingdom and the European Union continues to rise. In that case, it will exacerbate some unfavorable feelings toward crude oil.

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