Crude oil prices slumped on Monday due to disappointing economic data from China, the world’s largest crude importer and second-largest crude consumer.
The sharp fall in oil prices is further exacerbated by the news of a potential breakthrough in nuclear power negotiations with Iran, easing the pressure on crude oil markets.
According to data from Oilprice.com, the Brent crude and WTI plunged by about 5% in Monday’s trading to close at $94.18 per barrel and $88.18 per barrel respectively.
China’s disappointing economic data
The drop occurred after China’s Central Bank announced a surprise cut in lending rates on the back of weak economic data for July triggered by the Asian country’s restrictive zero-Covid policy.
The Chinese economic data was further dragged down by its property crisis, which saw property investments fall by 12.3% in July—the fastest rate this year.
China’s oil refinery data was also a disappointment, with its refinery output dropping to 12.53 million bpd—the lowest level since March 2020 and 8.8% lower than processing rates in July 2021 due to unplanned shutdowns at state-run refineries such as Sinopec and PetroChina and shrinking refining margins.
Also, the Chinese government has concluded plans to launch another round of tax probes on private teapot refiners, which can potentially cause refinery slowdowns. Teapots account for one-fifth of China’s crude oil imports.
Iran factor in oil price slump
Meanwhile, Iran also played a likely part in the oil prices movement on Monday with the Middle East country suggesting that a nuclear deal agreement could be reached within the next few days if the United States consider its ‘red lines’. A concluded nuclear deal will see Iranian crude returning to the global market with more barrels of oil sent into the market.
What you should know
- The oil market has been under pressure since this year, mostly due to the Russia-Ukraine war which has affected trade flows from that region.
- Oil prices had surged since Russia invaded Ukraine, raising concerns about global shortages given the nation’s role as a key commodities supplier, especially to Europe.
- However, prices had been dropping lower over the past couple of months on concerns about an economic slowdown, shedding all the gains initially made after the invasion of Ukraine by Russia.
