Oil prices started the week bearish by more than 1%, dropping for a third consecutive session. The reason for the decline can be traced to official data which disclosed that the refining throughput and economic activity of China, the world’s biggest oil importer, decelerated. This is an indicator that fresh COVID-19 Delta variant outbreaks are crimping the world’s second-largest economy.
Brent crude oil, on the 10th of August 2021, slipped below the $70 trading zone, trading as low as $68.94 but quickly recovered above the level. The bull has not been able to charge further upward as a result of discouraging fundamentals around the prospects of oil demand.
Brent crude, the global benchmark for oil is down 1.54%, currently trading at $69.54 a barrel while the U.S benchmark for oil, the West Texas Intermediate (WTI) is down 1.73%, currently trading at $66.96 a barrel, as of the time of writing this report.
Data revealed that the factory output and retail sales growth slowed sharply in July in China, due to fresh outbreaks of COVID-19 and flooding which disrupted business activity.
China’s crude oil processing last month also fell to the lowest on a daily basis since May 2020, as independent refiners cut production amid tighter quotas, elevated inventories and falling profits.
In Japan, the world’s fourth-biggest importer of crude oil, many analysts expect modest economic growth in the current quarter as a state of renewed emergency restrictions to deal with record cases of infections weigh on household spending.
Another data affecting the prices of oil is the International Energy Agency (IEA) report on Thursday which stated that rising demand for crude oil slowed course in July and was expected to increase at a slower rate over the rest of 2021 because of surging COVID-19 infections.
What they are saying
Kelvin Wong, a market analyst at CMC Markets in Singapore stated, “Oil futures weakness … is likely triggered by weaker-than-expected growth data from China, which is a major consumer of oil. All in all, the global peak growth narrative has been intensified.”
Moody’s, an American business and financial services company stated, “We expect (Japan GDP) growth to remain under pressure in the third quarter as spending and production continue to struggle amidst disruptions from the pandemic.”
Also, to note, the U.S. Commodity Futures Trading Commission (CFTC) stated that money managers reduced their net-long U.S. crude futures and options holdings in the week to Aug. 10. This means more and more investors are changing their bullish stance on the price of the black liquid, which is still net positive Year-to-Date by approximately 37%. The CFTC also said that speculators also cut their futures and options positions in New York and London by 21,777 contracts to 283,601 over the period.