On September 7th, oil price took a dip, driven by concerns about China’s economic uncertainty, despite expectations of tightened supplies resulting from extended supply cuts by Saudi Arabia and Russia. China, the world’s second-largest economy, faced declining exports and imports in August due to sluggish overseas demand and weak domestic consumer spending, putting pressure on businesses.
Brent crude futures experienced a decrease of 42 cents, or 0.5 percent, settling at $90.18 per barrel, while US West Texas Intermediate crude (WTI) futures dropped by 52 cents, or 0.6 percent, reaching $87.02, as reported by Reuters.
Both benchmark crude prices had surged earlier in the week after Saudi Arabia and Russia, the top two global oil exporters, announced voluntary supply cuts extending until the end of the year. On Tuesday, Brent crude futures gained $1.04, or 1.2 percent, closing at $90.04 per barrel, surpassing the $90 mark for the first time since November 16, 2022. US WTI futures also climbed by $1.14, or 1.3 percent, settling at $86.69 per barrel, marking a 10-month high.
In the domestic market, on the Multi Commodity Exchange (MCX), crude oil futures with a September 19 expiry were trading lower by 0.79 percent at ₹7,247 per barrel. Prices fluctuated between ₹7,220 and ₹7,270 per barrel during the session, compared to the previous close at ₹7,305 per barrel.
Several factors have been influencing crude oil price:
- China’s Economic Woes: China’s exports declined by 8.8 percent in August year-on-year, while imports contracted by 7.3 percent. Despite these challenges, China’s crude oil imports surged in August as refiners built inventories to capitalize on higher fuel export profits.
- Saudi Arabia and Russia’s Extended Cuts: Saudi Arabia and Russia unexpectedly extended their voluntary oil cuts, with Saudi Arabia reducing production by 1 million barrels per day (bpd) and Russia by 300,000 bpd. These cuts, combined with OPEC+ agreements, are set to continue until the end of 2024.
- US Inventory Drawdown: The expectation of a drawdown in US inventories contributed to price support. The American Petroleum Institute reported a 5.5 million-barrel decrease in crude inventories the previous week.
Despite these factors, concerns persist about rising oil output from Iran and Venezuela, which could offset some of the cuts from Saudi Arabia and Russia.
While oil prices experienced recent spikes due to supply cut extensions, China’s economic challenges and the potential for increased oil output from certain countries continue to introduce uncertainty into the crude oil market. Technical analysis suggests a neutral sentiment in the domestic market with key price levels to watch.