Oil prices declined by 2% on Wednesday as weak Chinese data and a stronger United States dollar dragged on commodity prices.
Brent crude oil, against which Nigerian oil is priced, dipped by $1.75, or 2.37%, to $71.96 a barrel at 3:46 pm while U.S. West Texas Intermediate crude (WTI) shed $1.90, or 2.74%, to $67.56.
The decline in prices was caused by weak Chinese manufacturing activity. The data released by the Chinese government showed that activity in the sector contracted faster than expected in May with the official manufacturing purchasing managers’ index declining from 49.2 posted in April to 48.8 in May, below the 49.4 predicted by economists.
Also, the strong U.S. dollar is another factor impacting the purchase of crude oil as buyers holding foreign currencies found it too expensive.
The U.S. dollar index, which measures the greenback against six major peers, saw support from cooling European inflation and progress on the U.S. debt ceiling standoff, which will advance to the House of Representatives for debate on Wednesday.
Market players are preparing for the upcoming June 4 meeting of OPEC+ – the Organization of the Petroleum Exporting Countries and allies including Russia.
Mixed signals by major OPEC+ producers on whether or not the group will decide to further cut oil production have sparked recent volatility in oil prices.
Despite the latest pullback in prices, HSBC and analysts do not expect OPEC+ to announce further cuts in the upcoming meeting.
HSBC said on Wednesday that stronger oil demand from China and the West from the summer onwards will bring about a supply deficit in the second half of the year.