31-5-2023 Oil prices continued to decline on Wednesday as worries about slowing demand from China, the world’s top oil importer, overshadowed positive developments regarding the U.S. debt ceiling bill. Weaker-than-expected economic data from China contributed to the decline in oil prices, which had briefly seen gains earlier.
By 0250 GMT, Brent crude futures for August delivery dropped by 28 cents to $73.43 per barrel, while U.S. West Texas Intermediate crude (WTI) slipped 26 cents to $69.20 per barrel. Both benchmarks experienced a decline of over 4 percent on Tuesday.
Brent’s July contract, set to expire on Wednesday, and the U.S. benchmark were on track for monthly declines of more than 7 percent and 9 percent, respectively.
China’s manufacturing activity contracted at a faster pace than anticipated in May, indicating weakening demand. The official manufacturing purchasing managers’ index (PMI) dropped to 48.8 from 49.2 in April, falling short of the forecasted 49.4.
Vivek Dhar, Director of Commodities Research at Commonwealth Bank of Australia, commented, “With China’s industrial output and fixed-asset investment growing more slowly than expected last month, markets are worried that China’s commodity demand is weakening more quickly than anticipated. The current pessimism surrounding China’s commodity demand stands in contrast to the optimism at the beginning of this year.”
In the U.S., trader sentiment received a slight boost after legislation brokered by President Joe Biden and House Speaker Kevin McCarthy to raise the $31.4 trillion U.S. debt ceiling and implement new federal spending cuts cleared a significant hurdle on Tuesday. The legislation now moves to the full House of Representatives for debate, with an expected vote on Wednesday.
If passed, it is unlikely that the Biden administration would need to negotiate the debt ceiling again before the November 2024 presidential election, according to Dhar.
The deadline for the debt ceiling coincides closely with the OPEC+ meeting scheduled for June 4th. Uncertainty looms over whether the group will increase output cuts as the market grapples with falling prices.
Saudi Arabian Energy Minister Abdulaziz bin Salman recently warned short sellers betting on falling oil prices to “watch out,” possibly signaling that OPEC+ may reduce output. However, comments from Russian oil officials and sources, including Deputy Prime Minister Alexander Novak, indicate that Russia, the world’s third-largest oil producer, is leaning towards maintaining current output levels.
Meanwhile, Saudi Arabia’s state-owned oil company, Saudi Aramco, is expected to lower the official selling prices for all crude grades to Asia in July by $1 per barrel, the lowest level since November 2021, according to a Reuters poll. These mixed signals regarding output expectations add further complexity to the market.
In April, Saudi Arabia and other OPEC+ members announced additional oil output cuts of around 1.2 million barrels per day (bpd), bringing the total volume of cuts by OPEC+ to 3.66 million bpd
