Oil Prices Drop: Chinese GDP Impacts Over 1% Slide

Key Highlights

• Chinese economic growth disappoints, falling short of expectations.
• Two out of three Libyan oil fields have resumed production.
• Sources indicate that Russian oil exports from western ports are expected to decline.

Chinese Economic Growth Falls Short of Expectations

On July 17, according to Reuters, the oil market experienced a decline of over 1% due to weaker-than-expected Chinese economic growth. This development has raised concerns regarding demand in the world's second-largest oil consumer. Additionally, the partial restart of previously halted Libyan output has exerted further pressure on oil prices.

Weakening Chinese Economy Impacts Oil Market

China's gross domestic product (GDP) grew 6.3% year-on-year in the second quarter, below the 7.3% expected by analysts. The post-pandemic recovery of the Chinese economy has faced rapid faltering due to weakening demand both domestically and internationally. This disappointing GDP figure has done little to alleviate concerns about the Chinese economy, as highlighted by Warren Patterson, ING's head of commodities research.

Oil Prices Experience Decline

Brent crude declined 97 cents, or 1.2%, to $78.90 a barrel by 1330 GMT. Similarly, U.S. West Texas Intermediate crude dropped by 83 cents, equivalent to 1.1%, settling at $74.59. These losses mark the second consecutive day of price decline for both oil contracts.

Chinese Data Impacts Market Sentiment

Previously, China's economic data was anticipated with a degree of hope, especially by oil bulls. However, the current economic situation in Asia's driving force appears to favor the bears, according to John Evans, an oil broker at PVM. This sentiment reflects the impact of the disappointing Chinese GDP figures on the market.

Temporary Upsurge and Ongoing Challenges

Although oil prices experienced a brief uptick following a Reuters news alert on Saudi Arabia's extension of a voluntary output cut, the alert was later retracted as it repeated news previously published on June 4. Despite this temporary surge, both Brent crude and U.S. West Texas Intermediate crude witnessed losses, overshadowing the three weeks of gains they had previously achieved, reaching their highest levels since April. The support from OPEC+ output curbs and unplanned outages in Libya and Nigeria was undermined by the resumption of output at two of three Libyan fields that were previously shut down. These fields had halted production due to a protest against the abduction of a former finance minister.

Russian Oil Exports to Decline

Russian oil exports from western ports are expected to fall by 100,000-200,000 barrels per day (bpd) next month, indicating further supply tightening. This development aligns with Moscow's commitment to reducing oil supply in coordination with Saudi Arabia, according to two sources on Friday. The two sources who reported this development have suggested that this is another sign of tighter oil supplies.

In Summary, weaker-than-expected Chinese economic growth and the resumption of output in Libya have contributed to a decline in oil prices. These developments have raised concerns about oil demand, particularly in China. Additionally, the anticipation of a decrease in Russian oil exports further impacts market sentiment. As the oil market continues to face challenges, it remains to be seen how these factors will affect prices in the coming weeks.