June 5, 2023

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Oil falls as weak Chinese factory data heightens demand fears

Oil falls as weak Chinese factory data heightens demand fears

LONDON (Reuters) – Oil prices fell on Monday as weak manufacturing data from China and Japan weighed on demand expectations as investors prepared for this week’s meeting of officials from OPEC and other major crude producers on supply adjustments.

Brent crude futures were down $1.42, or 1.4 percent, at $102.55 a barrel by 1017 GMT. US West Texas Intermediate crude fell $1.85, or 1.9 percent, to $96.77.

New COVID-19 lockdowns have led to a brief rebound in factory activity in China, the world’s largest importer of crude oil. Data on Monday showed that the Caixin/Market manufacturing PMI fell to 50.4 in July from 51.7 the previous month, well below analysts’ expectations. Read more

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Data on Monday showed Japanese manufacturing activity expanded at the weakest rate in 10 months in July. Read more

“[China] “It was already facing a tough challenge, to put it mildly, in terms of its growth target this year, and the fact that manufacturing activity is slowing again doesn’t bode well,” said Oanda analyst Craig Erlam.

Brent and West Texas Intermediate in July ended with a second straight monthly loss for the first time since 2020 as rising inflation and higher interest rates raised fears of a recession that could erode demand for fuel.

Analysts in a Reuters poll for the first time since April cut their forecast for average Brent crude prices in 2022 to $105.75 a barrel. Their estimate of WTI fell to $101.28. Read more

The Organization of the Petroleum Exporting Countries and its allies including Russia, known as OPEC+, meet on Wednesday to decide on September production.

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Two of eight OPEC+ sources in a Reuters survey said a modest increase for September would be discussed at the August 3 meeting. The rest said production was likely to remain flat. Read more

The meeting comes after US President Joe Biden’s visit to Saudi Arabia last month.

“While President Biden’s visit to Saudi Arabia did not produce immediate oil results, we believe that the kingdom will reciprocate by continuing to gradually increase production,” Helima Croft, an analyst at RBC Capital, said in a note.

The beginning of August sees OPEC+ completely abandon record production cuts since the outbreak of the COVID-19 pandemic in 2020.

Kuwaiti newspaper Al-Rai reported that the group’s new Secretary-General, Haitham Al-Ghais, affirmed on Sunday that Russia’s membership in OPEC+ is vital to the success of the agreement. Read more

Among the factors that affected prices was the rise in Libyan oil production, which amounted to 1.2 million barrels per day, up from 800,000 barrels per day on July 22, after the blockade of several oil installations was lifted.

Meanwhile, US oil production continued to rise. Data from Baker Hughes showed that the number of rigs in the country rose by 11 in July, an increase for the 23rd consecutive month.

Wang Tao, a Reuters technical analyst, said that a break in Brent crude prices below the key $102.68 support level could lead to a drop in the range from $99.52 to $101.26.

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(Covering) Ahmed Ghaddar Addonal (Reporting by Florence Tan) in Singapore Editing by David Goodman

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