Aug 15, 2023
Oil Hits Two-Week Low as Growing China Woes Offset Tight Supply
, Bloomberg News
(Bloomberg) -- Oil plunged to the lowest in almost two weeks on growing concerns that China’s faltering economy will erode demand in the world’s biggest importer of crude.
US oil futures settled below $81 a barrel in thin trading, dropping in tandem with equities and defying strength in underlying physical markets. An unexpected interest-rate cut by China’s central bank underscored issues besetting Beijing, from a worsening property slump and weak consumer spending to fears over shadow banking.
“Oil markets are suffering from economic growth concerns,” said Giovanni Staunovo, an analyst at UBS Group AG. “Chinese economic data continues to disappoint, while in the US economic data — retail sales — came in on the stronger side, with market participants concerned that requires even higher policy rates from the Fed.”
The weakening sentiment comes despite physical markets continuing to flash signs of strength. Crude inventories at the Cushing, Oklahoma, hub are seen draining to their lowest level since April, while Asian refineries continue to ramp up imports. Supplies have become increasingly tight since late June as OPEC+ kingpins Saudi Arabia and Russia cut production, helping to drain stockpiles. Both crude benchmarks are still trading steeply in backwardation, a market structure that signals near-term supply tightness.
Consumption also has been more robust than many observers expected. The International Energy Agency estimates global demand has been running at a record pace, and in the US, the Energy Information Administration figures showed record levels of usage seasonally.
But the rally has fizzled in recent trading sessions on growing concerns that Chinese demand has already peaked for the year. Consumer spending and industrial output has disappointed, unemployment has picked up and turmoil in the shadow banking industry is sparking wider fears over the country’s economic health.
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--With assistance from Rachel Graham and Alaric Nightingale.
©2023 Bloomberg L.P.
