Global oil prices experienced a decline of more than $1 on Monday, retracing the gains achieved last week. The prevailing uncertainties surrounding China’s economy overshadowed the positive impact of OPEC+ output cuts and the continuous reduction in oil and gas rigs operating in the United States.
Brent crude, a key benchmark, faced a loss of $1.15, equivalent to a 1.5% decrease, settling at $75.46 per barrel by 0350 GMT. Similarly, U.S. West Texas Intermediate (WTI) crude declined by $1.09, representing a 1.5% drop, reaching $70.69.
During the previous week, Brent crude had registered a gain of 2.4%, while WTI witnessed a rise of 2.3%.
Tina Teng, an analyst at CMC Markets, suggested that the selloff could be attributed to the uncertainties surrounding China’s economy, following a two-day rebound in the oil markets ahead of The People’s Bank of China’s (PBOC) decision regarding its loan prime rates (LPR) for the week.
Several major banks have revised their gross domestic product (GDP) growth forecasts for China in 2023 after the May data indicated a faltering post-COVID recovery in the world’s second-largest economy.
The PBOC is expected to lower its benchmark loan prime interest rates on Tuesday, following a similar reduction in medium-term policy loans the previous week in order to support the shaky economic recovery.
Reuters sources suggest that China will introduce further stimulus measures to bolster its slowing economy; however, concerns persist regarding debt and capital flight, limiting the focus to weak consumer and private sector demand.
Despite these economic concerns, China’s refinery throughput in May reached its second-highest level on record, contributing to the gains observed last week.
Additionally, U.S. energy firms reduced the number of operational oil and natural gas rigs for the seventh consecutive week, a trend not seen since July 2020. The oil and gas rig count, which serves as an early indicator of future output, dropped by 8 to 687 in the week ending June 16, marking the lowest count since April 2022.
Edward Moya, a senior analyst at OANDA, attributed Monday’s decrease in oil prices to expectations of challenges in achieving compliance with production quotas within the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia (OPEC+).
Moya highlighted comments made by Igor Sechin, the head of Russian energy major Rosneft, who suggested that the focus should shift from production to exports. Sechin proposed that OPEC+ monitor not only production quotas but also oil export volumes, considering the differing sizes of each country’s domestic markets.
Earlier this month, OPEC+ reached a new agreement on oil output, with Saudi Arabia, the largest producer within the group, committing to a substantial cut in its production for July.
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