Oil prices drop over 3% on faltering demand outlook in China

LONDON: Oil fell by over 3 per cent on Monday to a one-week low, dropping for a third session after official data showed refining throughput and economic activity slowed in China, an indication that COVID-19 outbreaks are crimping the world’s second-largest economy.

Brent crude was down $2.21, or 3.1 per cent, at $68.38 a barrel by 1347 GMT. U.S. oil fell by $2.42, or 3.5 per cent, to $66.02.

Chinese factory output and retail sales growth slowed sharply in July, data showed, missing expectations as flooding and fresh outbreaks of COVID-19 disrupted business activity.

China’s crude oil processing last month also fell to the lowest level on a daily basis since May 2020 as independent refiners cut production in the face of tighter quotas, elevated inventories and falling profits. China is the world’s biggest oil importer.

“(Concerns) about the spread of the Delta variant in China and the effects this will have on oil demand are continuing to weigh on prices,” Commerzbank said in a note.

Doubts about the speed of economic recovery were also heightened after U.S. consumer sentiment dropped sharply in early August to its lowest in a decade, a University of Michigan survey showed late last week.

The International Energy Agency (IEA) last week said that rising demand for crude oil reversed course in July and was expected to increase at a slower rate over the rest of 2021 because of surging COVID-19 infections from the Delta variant.

Money managers reduced their net-long U.S. crude futures and options holdings in the week to Aug. 10, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.

Speculators also cut their futures and options positions in New York and London by 21,777 contracts to 283,601 over the period, the CFTC said.