Global oil prices experienced a sharp decline of over 1% on Monday as concerns over China’s economy outweighed the positive impact of OPEC+ output cuts and the continuous drop in the number of oil and gas rigs operating in the United States.
Brent crude, the international benchmark for Nigerian oil, shed 78 cents, or 1% to settle at $75.83 per barrel by 7:55 am Nigerian time while the U.S. West Texas Intermediate (WTI) crude dropped by 76 cents, or 1.1% to $71.02 a barrel.
“China’s economic uncertainties may have caused the selloff after a two-day rebound in oil markets ahead of The People’s Bank of China’s (PBOC) decision on its loan prime rates (LPR) this week,” said Tina Teng, an analyst at CMC Markets.
In an effort to stabilize its shaky economic recovery, China is expected to implement a reduction in its benchmark loan prime interest rates on Tuesday, following a recent cut in medium-term policy loans.
Reuters sources suggest that more stimulus support will be introduced to address the slowing economy. However, concerns about mounting debt and capital flight may restrict these measures to targeted support for weak demand in the consumer and private sectors.
Despite the economic uncertainties, China experienced a surge in refinery throughput in May to its second-highest level on record. This contributed to the gains observed last week.
Meanwhile, the United States saw a consecutive decrease in the number of active oil and natural gas rigs for the seventh week, signaling a trend not seen since July 2020. The rig count fell by 8 to 687 in the week ending June 16, marking the lowest count since April 2022.
According to senior analyst Edward Moya from OANDA, oil prices on Monday dropped due to prevailing concerns that the Organization of the Petroleum Exporting Countries (OPEC) and its allied nations, collectively known as OPEC+, might encounter difficulties in achieving full compliance with their agreed-upon production quotas.