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Crude Oil Sheds 1 Percent After Data Shows Slowing Economic Activity in China

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Oil prices declined by more than one percent on Monday as concerns regarding slowing China’s economic activity weigh on market sentiment.

Brent crude oil, against which Nigerian oil is priced, dipped by 1.3 percent or 90 cents to $69.69 a barrel as at 8:36 am Nigerian time while the U.S. West Texas Intermediate (WTI) declined by 1.4 percent or 97 cents to $67.47 a barrel.

The data released on Monday shows China’s factory output and retail sales growth slowed and missed expectations in the month of July as new COVID-19 outbreaks and floods disrupted business operations in cities, further adding to concerns the economic recovery is losing momentum.

China, the world’s second-largest economy and the largest importer of crude oil recorded 6.4 percent year-on-year growth on factory output in July, against 8.3 percent posted in June and 7.8 percent expected by analysts.

Retail sales grew by 8.5 percent year-on-year, down from 12.1 percent achieved in June and below 11.5 percent predicted by analysts.

“Oil futures weakness … is likely triggered by weaker-than-expected growth data from China, which is a major consumer of oil,” said Kelvin Wong, market analyst at CMC Markets in Singapore. “All in all, the global peak growth narrative has been intensified.”

Data also showed Chinese crude oil processing declined in the month of July to the lowest on a daily basis since May 2020 when COVID-19 was at its peak. Suggesting that refiners are cutting production amid tighter quotas, elevated inventories and declining profits, a situation expected to hurt global crude oil demand given the size imported by China.

This was in line with the International Energy Agency report on Thursday that rising demand for crude oil changed course in July and was expected to increase at a slower rate over the rest of 2021 due to rising COVID-19 infections.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Crude Oil

Oil Holds Near Highest Since 2018 With Global Markets Tightening

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Oil held steady near the highest close since 2018, with the global energy crunch set to increase demand for crude as stockpiles fall from the U.S. to China.

Futures in London headed for a third weekly gain. Global onshore crude stocks sank by almost 21 million barrels last week, led by China, according to data analytics firm Kayrros, while U.S. inventories are near a three-year low. The surge in natural gas prices is expected to force some consumers to switch to oil, tightening the market further ahead of the northern hemisphere winter.

China on Friday sold oil to Hengli Petrochemical Co. and a unit of PetroChina Co. in the first auction of crude from its strategic reserves said traders with the knowledge of the matter. Grades sold included Oman, Upper Zakum and Forties.

Oil has rallied recently after a period of Covid-induced demand uncertainty, with some of the world’s largest traders and banks predicting prices may climb further amid the energy crisis. Global crude consumption could rise by an additional 370,000 barrels a day if natural gas costs stay high, according to the Organization of Petroleum Exporting Countries.

“Underpinning the latest bout of price strength is a tightening supply backdrop,” said Stephen Brennock, an analyst at PVM Oil Associates Ltd.

Various underlying oil market gauges are also pointing to a strengthening market. The key spread between Brent futures for December and a year later is near $7, the strongest since 2019. That’s a sign traders are positive about the market outlook.

At the same time, the premium options traders are paying for bearish put options is the smallest since January 2020, another indication that traders are less concerned about a pullback in prices.

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Crude Oil

Oil Gains 1 Percent on Possible Tight Supply 

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Oil prices rose on Tuesday as analysts pointed to signs of U.S. supply tightness, ending days of losses as global markets remain haunted by the potential impact on China’s economy of a crisis at heavily indebted property group China Evergrande.

Brent crude gained 95 cents or 1.3% to $74.87 a barrel by 0645 GMT, having fallen by almost 2% on Monday. The contract for West Texas Intermediate (WTI) , which expires later on Tuesday, was up 91 cents or 1.3% at $71.20 after dropping 2.3% in the previous session.

Global utilities are switching to fuel oil due to rising gas and coal prices, and lingering outages from the Gulf of Mexico after Hurricane Ada that imply less supply is available, ANZ analysts said.

“While slowing Chinese economic growth and uncertainty around the (U.S.) Fed’s tapering timetable weighed on market sentiment, other developments still point to higher oil prices,” ANZ Research said in a note.

Still, investors across financial assets have been rocked by the fallout from heavily indebted Evergrande (3333.HK) and the threat of a wider market shakeout in the longer term.

“Evergrande’s woes are threatening the outlook for the world’s second-largest economy and making some investors question China’s growth outlook and whether it is safe to invest there,” said Edward Moya, senior market analyst at OANDA.

While that view of the state of China’s economy is weighing on markets, the U.S. Federal Reserve is also expected to start tightening monetary policy – likely to make investors warier of riskier assets such as oil.

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Crude Oil

Crude Oil Drops as U.S Dollar Extends Gain

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Crude oil - Investors King

Oil prices declined on Monday after the United States Dollar rose to a three-week high and the U.S oil rig count increased amid drop in U.S. Gulf of Mexico output.

Brent crude oil, against which Nigerian crude oil is priced, sheds $1.03 or 1.37 percent to $74.31 per barrel at 9.38 am Nigerian time. While the U.S West Texas Intermediate oil declined by $1.18 or 1.64 per barrel to $70.79 a barrel.

The recent increase in dollar strength against global currencies has dragged on crude oil outlook as energy investors cut down on imports to avoid possible market headwinds. Strong U.S. dollar priced crude oil is more expensive for holders of other currencies.

U.S dollar rose to a three-week high after retail sales unexpected rose by 0.7 percent in the month of August. The increase bolstered expectations that the U.S Federal Reserve will start cuttiing down on asset purchases later this year.

“U.S. consumption is not slowing as quickly as it appeared a month ago despite the fading stimulus, and the Delta variant did not much affect the industries feeding into retail sales,” said Chris Low, chief economist at FHN Financial in New York. “The economy continued to hum in August.”

According to the researchers at ING Bank, strong US dollar over the last few days has provided some headwinds to the market.

Also, an increase in U.S rig count to 512 in the week ended September 17, 2021 clouded the oil market. Oil rige rose by 9, the highest since April 2020.

Still, as at Friday 23 percent of U.S. Gulf of Mexico crude output, or 422,078 barrels per day, remained shut, stated the Bureau of Safety and Environmental Enforcement.

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