China’s economy, EU’s energy scene to drive oil this week

Economic activity in China and the evolving energy landscape in the European market may be the factors driving oil markets this week, analysts said.

Weakening economic conditions in the world’s major economies last week overwhelmed some of the supply concerns that followed the decision from the Organization of the Petroleum Exporting Countries to trim production come October.

West Texas Intermediate, the U.S. benchmark for the price of oil, went on another wild ride, posting a daily loss of 5.7 percent on Wednesday and a gain of nearly 4 percent two days later. In the end, however, WTI lost about 2.5 percent to close the week at $86.09 per barrel.

This week, said Edward Gardner, a commodities economist at London-based Capital Economics, the demand side of the market equation could again trump supply. The outlook for energy demand is darkened by tight COVID-19 restrictions in China, which is having a dramatic impact on its economy.

A mid-September holiday and similar plans for October may be on hold this year for millions of Chinese under lockdown because of the zero-tolerance policy against COVID-19. Slow economic growth meant China’s crude oil imports for August were 9.4 percent lower than the same time last year, customs data showed.

Gardner said to pay attention to the Chinese government as it gets ready for October’s regular five-year Communist Party meeting, which could consolidate Chinese President Xi Jinping’s tight controls even further. Xi is expected to be elected to a third term, breaking recent precedent that limited the party and national leader to two terms.

China’s economic malaise is adding to mounting concern that a slowing global economy will depress demand. Gardner said the question then is whether OPEC and its allies, known as OPEC+, respond by curbing production further. demand concerns.

“After all, the group agreed last Monday to ‘continuously’ monitor the oil market and potentially make ‘adjustments’ before October if necessary,” Gardner said.

OPEC+ last week opted to cut output by 100,000 barrels per day come October,

Phil Flynn, an energy analyst at The PRICE Futures Group in Chicago, said his focus is on the possible showdown between Western allies and Russia over a proposed price cap on fuels. The Group of Seven major industrialized countries announced plans for an as-yet-determined price cap on Russian oil and natural gas exports to starve the Kremlin of the funds it needs to wage war on Ukraine.

“There’s going to be a real possibility that Russia sends a message to the EU by reducing oil supplies, and I think there’s a significant risk of a price spike,” Flynn added.

But the overall economy could throttle momentum for crude oil prices, said Jeff Mower, the director of oil news in the Americas for S&P Global Commodity Insights. The Bank of Canada and the European Central Bank both raised their key lending rates by three-quarters of a percent last week to fight inflation, and it may be inevitable that the Federal Reserve follows suit when it meets again late September.

“If the higher rates slow economic growth, that could weigh on crude oil demand (and push prices lower),” Mower said.

U.S. inflation data for August comes out Tuesday. Retail sales figures and a preliminary reading of consumer sentiment for September from the University of Michigan round out the week.