Global oil prices experienced a decline on Monday, relinquishing the gains made in the previous week. The concerns surrounding China’s economy overshadowed the impact of OPEC+ output cuts and the continuous decrease in the number of oil and gas rigs in the United States. Brent crude, the international benchmark, saw a reduction of 68 cents, trading at $75.93 per barrel as of 0042 GMT. Similarly, US West Texas Intermediate (WTI) crude dropped by 59 cents, settling at $71.19. Despite the recent setback, Brent achieved a 2.4% increase last week, while WTI rose by 2.3%.
Reduced Growth Forecasts for China
Major banks have decided to revise their predictions for China’s gross domestic product (GDP) growth in 2023. This decision follows the release of May data last week, which unveiled a struggling post-COVID recovery in the world’s second-largest economy. Consequently, concerns surrounding China’s economic stability have heightened. Although the country plans to introduce additional stimulus measures to support its slowing economy, the focus will primarily be on bolstering weak consumer and private sector demand due to mounting worries about debt and capital flight.
China’s Refinery Throughput Provides Temporary Relief
In May, China’s refinery throughput surged, reaching its second-highest record level to date. This increase in activity contributed to the positive performance observed in the oil market last week. Simultaneously, energy companies in the United States continued to reduce the number of operational oil and natural gas rigs for the seventh consecutive week, marking the first time this has occurred since July 2020. In the week leading up to June 16, the oil and gas rig count fell by 8 to 687, representing the lowest count since April 2022.
OPEC+ Output Cuts and Increased US Gasoline Demand
The voluntary output cuts implemented by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, along with Saudi Arabia’s additional reduction in July, have provided crucial support for oil prices. Furthermore, the expectation of strong demand during the US driving season has emerged as a positive factor. ANZ Research highlighted this sentiment, emphasizing that US gasoline demand surged to 9.24 million barrels per day last week—the highest level recorded since December 2021.
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Despite the gains made in the previous week, global oil prices experienced a decline due to concerns surrounding China’s economic growth forecasts. Major banks have adjusted their predictions for China’s GDP growth in 2023 following disappointing May data, indicating a faltering recovery from the COVID-19 pandemic. While China plans to implement additional stimulus measures to address weak demand, worries regarding debt and capital flight persist. However, China’s refinery throughput reached a record high in May, providing temporary relief for the market. Additionally, the continuous reduction in the number of operating oil and gas rigs in the United States supports oil prices. The voluntary output cuts by OPEC+ members and increased gasoline demand in the US also contribute to the market’s stability. As the situation continues to unfold, market participants will closely monitor China’s economic trajectory and the impact it may have on global oil prices.
