Oil prices slip after weak Chinese data, OPEC+ meeting looms

© Reuters.

By Ambar Warrick 

AiVIF.com --

Oil prices sank on Monday after an unexpected drop in Chinese factory activity raised concerns over slowing crude demand in the world’s second largest economy.

At 2339 GMT,Crude Oil WTI Futures sank 0.9% to $97.73 a barrel, while Brent Oil Futures dropped 0.6% to $103.39- extending their sharp declines in July. Crude oil prices shed over 7% in the previous month. 

Chinese factory activity shrank in July amid a fresh round of COVID-related lockdowns, official data showed on Sunday. The purchasing manager’s index (PMI) fell to 49.0 in July from 50.2 in the previous month. A reading below 50 indicates a contraction. 

A prolonged Chinese economic downturn is likely to weigh on global oil demand, given that the country is among the largest importers of crude oil. A brewing debt crisis in the country’s beleaguered real estate sector could also point to more economic weakness. 

Focus now turns to the Organization of Petroleum Exporting Countries and allies (OPEC+), which is set to meet on Wednesday, August 3, to discuss future supply. Reports suggest the group is likely to either hold production at current levels, or slightly raise output. 

The organization is by August expected to have fully phased out record supply cuts introduced during the COVID-19 pandemic in 2020. 

The OPEC+ decision this week will be closely watched by traders, given that U.S. President Joe Biden has called on the group to increase output to stabilize the market. 

Crude prices had jumped to near record highs earlier this year amid supply shocks from the Russia-Ukraine war. But they have since sharply consolidated their gains, amid concerns that rising inflation and a potential global economic recession will smother demand. 

With the U.S. now logging two quarters of negative growth, and the European Central Bank also flagging a potential recession, demand for crude oil is expected to be dulled in the remainder of 2022. 

The OPEC also recently forecast that crude oil demand is expected to rise at a slower pace in 2023 that 2022, indicating that a downturn could be prolonged.