Oil extended losses at the start of the week as traders weighed concerns about Chinese demand and the prospect for more Iranian supply on the back of Monday announcements.
West Texas Intermediate plunged as much as 5.7 per cent to as low as $86.84 a barrel, the lowest in more than six months. Oil retreated since China announced a surprise cut in key interest rates on the back of weak economic data, while a nuclear deal with Iran that could boost a tight supply outlook looks closer after announcements on Monday.
Some of the potential additional flows of Iranian oil to the global market have already been priced in, according to Ole Hansen, head of commodity strategy, at Saxo Bank A/S. But “any additional supply news will give ammunition to funds selling oil as a hedge against an economic slowdown”, he said.
After over a year of stalled and cancelled talks, a nuclear deal with Iran looks more likely than it has done for months. A spokesperson for the Iranian foreign ministry said there could be a basis for a signed agreement “in the very near future”, while Foreign Minister Hossein Amirabdollahian said in a separate briefing that the country would inform the European Union tonight of its position regarding a final draft text for a finalised nuclear deal, while striking a more conciliatory tone than in recent months.
Meanwhile, data released on Monday showed China’s apparent oil demand last month was about 10 per cent lower year-on-year, with the economy battered by virus lockdowns and property woes.
“We’re really seeing where China’s economy is at and it’s a lot less rosy than people had hoped, consumption is going to be lower than anticipated, certainly for oil,” Sucden Financial’s head of research Geordie Wilkes said by phone.
China’s economic recovery unexpectedly weakened in July as fresh Covid-19 outbreaks impacted consumer and business spending. Industrial output rose 3.8 per cent from a year ago, lower than June’s 3.9 per cent and missing economists’ forecast of a 4.3 per cent increase. Oil refining also fell as plants shut for maintenance.
Crude has ticked lower over the past couple of months on concerns about an economic slowdown, shedding all the gains put on following Russia’s attack on Ukraine. Money managers have cut their bullish bets on WTI to the lowest in over two years, according to the Commodity Futures Trading Commission.
