Futures Movers: Oil prices settle at 1-week low as China data feed worries over a demand slowdown

United States

Oil futures fell Monday, with the commodity under pressure after a round of weak China data underscored the potential damage to demand from the spread of the delta variant of the coronavirus that causes COVID-19.

The factors pressuring oil prices include “rising COVID-19 cases, lower economic activity in China and delayed economic recovery elsewhere,” said Manish Raj, chief financial officer at Velandera Energy. The delta variant, and other emerging strains, are “on top of every oil trader’s mind.”

U.S. oil production has also been “creeping up and is now 300,000 barrels per day higher from the beginning of the year,” Raj told MarketWatch. U.S. supply increases, alongside growth in production from the Organization of the Petroleum Exporting Countries and their allies, together know as OPEC+, is “exerting supply pressure, while demand recovery has slowed down.”

West Texas Intermediate crude for September delivery CL00, -1.40% CLU21, -1.40% fell $ 1.15, or 1.7%, to settle at $ 67.29 a barrel on the New York Mercantile Exchange. October Brent crude BRN00, +0.30% BRNV21, +0.30%, the global benchmark, declined $ 1.08, or 1.5%, finishing at $ 69.51 a barrel on ICE Futures Europe.

Both WTI and Brent crude prices marked their lowest settlements since Aug. 9, according to Dow Jones Market Data, but held ground above their session lows.

Prices found some support after Reuters reported that OPEC+ believes the market does not need more oil than the group plans to release in coming months, despite a call last week from the Biden administration for more oil, said Tyler Richey, co-editor at Sevens Report Research.

Among the products traded on Nymex Monday, September gasoline RBU21, -2.36% declined by 2.7% to $ 2.20 a gallon and September heating oil HOU21, -1.07% lost 1.4% to $ 2.05 a gallon.

July data out of China showed retail sales and industrial production disappointed, along with a January-to-July measure of fixed-asset investment. Meanwhile, the Taliban’s takeover of Kabul and the fall of the Afghanistan government was seen contributing to a weaker tone in financial markets but did little to add a risk premium to crude prices.

“The debacle in Afghanistan has attracted a lot of attention lately but there has been no visible market impact,” said Marios Hadjikyriacos, senior investment analyst at XM, in a note.

“Oil prices are instead trading lower on Monday as fears around a slowdown in Asian demand overpowered hopes for supply disruptions in case the instability in Afghanistan spreads beyond its borders,” the analyst said.

Digging into the China figures, July crude-oil processing fell to 59.06 million metric tons, or 13.9 million barrels a day, the lowest since May 2020, said Carsten Fritsch, analyst at Commerzbank. That was down 0.9% year over year, the first such negative reading since March 2020.

He noted refineries had processed a record 14.8 million barrels a day in June, but a string of low, monthly import figures had indicated the pace would have to slow.

In the first seven months of 2021, Chinese refineries still processed nearly 9% more crude oil than in the same period a year earlier, he noted, “as well as more than ever before.”

“Some refineries have announced that they may reduce their output even further in August, citing the spread of the delta variant as the reason,” Fritsch wrote.

Meanwhile, energy traders eyed storm activity in the Atlantic for potential disruptions to U.S. production and demand for oil and natural gas.

Natural gas for September delivery NGU21, +2.15% tacked on 2.2% to $ 3.95 per million British thermal units.

Natural gas saw support from potential shutdowns related to Tropical Storm Fred, mainly because natural-gas supplies are “very tight,” said Phil Flynn, senior market analyst at The Price Futures Group. There are also “expectations that liquefied natural gas exports may not be impacted as much by the storm given that its track is closer to Florida, he told MarketWatch.

Heading into the end of the U.S. supply refill season, natural-gas supplies look to go into the winter at some of the “lowest levels we’ve seen in a decade” so there are significant risks on the upside for prices, said Flynn.