Oil Prices Go Down as Traders Cash Out Amid Worries About China’s Demand

Oil Prices
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Oil prices dropped on Monday, snapping five days of gains, as investors took profits following the release of a report on China’s slowing economic activity. China is the world’s largest crude importer, which re-ignited concerns about falling global fuel demand. Investors took profits after the report.

Brent oil futures for December settlement dropped by as much as 1.1%, and at the latest check in at 06:45 GMT, they were down 39 cents, which is 0.4%, to $97.53 per barrel.

The price of a barrel of West Texas Intermediate oil for delivery in November dropped as high as 1.1% and was last seen at $92.27, which was a decrease of 37 cents, or 0.4%.

According to statistics that was released on Saturday, China’s service sector saw a decline for the first time in four months during the month of September. This was caused by COVID-19 regulations, which harmed both demand and company confidence.

The downturn in the economy of China, which is the world’s second-largest oil user after the United States, adds to rising fears about the possibility of a worldwide recession that might be sparked by multiple central banks hiking interest rates to battle high inflation rates.

“Oil is getting hit with the triple whammy of China’s economic weakness, U.S. monetary policy tightening, and Biden administration SPR intervention,” said Stephen Innes, managing director at SPI Asset Management, in a note. China’s economy is weakening, the U.S. monetary policy is tightening, and the Biden administration is intervening.

Innes was referring to the possibility of additional releases from the United States Strategic Petroleum Reserve the following month in response to the decision made last week by the Organization of the Petroleum Exporting Countries (OPEC) and allies, including Russia, known as OPEC+, to reduce their output target by 2 million barrels per day.

Following the announcement that the cut will take place, both Brent and WTI recorded their largest weekly percentage increases since March.

In a market that is already in a state of tightness, the supply will become much more constrained as a result of the cutbacks implemented by OPEC and its allies. Sanctions imposed by the EU on crude oil and oil products originating from Russia are scheduled to go into force in December and February, respectively.

According to a report published by ING analysts, “The reduction is definitely optimistic.”

“However, there is certainly still plenty of additional uncertainty in the market, including how the Russian oil supply develops as a result of the EU oil boycott and G-7 price restriction, as well as the demand forecast given the worsening macro picture,”

As a result of recent upward revisions to their oil price projections, analysts at banks and brokerages anticipate that the price of a barrel of Brent will exceed $100 in the coming months.

According to sources familiar with the situation who have knowledge of the matter, the Saudi Arabian state oil company Saudi Aramco has assured at least five of its North Asian customers that they will receive the full contract volumes of crude oil in the month of November. This comes despite the fact that the company has pledged to reduce its output.

This would imply that there has been no change in the actual physical supply of oil, at least with regard to Asian purchasers of crude from Saudi Arabia, which, as OPEC’s largest producer, will be responsible for a substantial amount of the cutbacks that have been promised.

India, the world’s third-largest oil consumer, has also shown other indications that consumption is beginning to slow down. According to figures released by the government on Friday, the demand for gasoline in September dropped to its lowest level since November and was down 3.6% from the previous month.

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