Oil prices slip on firm US dollar, sluggish China recovery
ALBAWABA – The United States (US) Dollar ticked higher on Monday against other currencies in Asia and Europe as oil prices slip on a stronger US dollar and concerns over China’s faltering economic recovery, after weeks of gains on tightening supply.
Brent crude futures fell $0.73, or 0.84%, to $86.08 a barrel by 0330 GMT while US West Texas Intermediate (WTI) crude slipped $0.71 to $82.48 a barrel, according to Reuters.
Oil prices slipped as the US dollar index extended gains after a slightly bigger increase in US producer prices in July lifted Treasury yields, the Canada-based news agency reported.
According to Bloomberg, oil prices slipped on declining demand expectations in light of the recent slump in China’s property sector.
A stronger dollar weighs on demand, making the commodity more expensive for buyers holding other currencies, which is why oil prices slip when the US dollar rises.
The US dollar has been rising for three days, Bloomberg underscored.
Oil prices slip despite OPEC+ cuts
Crude has risen by about a quarter since its lows in June, according to Bloomberg, as the Organization of Petroleum Exporting Countries and its allies (OPEC+) curtailed supply. Namely Russia and Saudi Arabia.
Oil cuts have contributed to a market deficit of more than 2 million barrels a day this quarter, as reported by OPEC+.
Rising risks to Russian crude oil flows through the Black Sea, given the war in Ukraine, also aided gains, until demand concerns over the economic situation in China overweighed optimistic outlooks.
"Crude has been in overbought territory for some time now, defying expectations of a correction. It has been singularly focused on US economic optimism, to the exclusion of the increasingly stronger headwinds blowing in the Eurozone and China," Vandana Hari, founder of oil market analysis provider Vanda Insights, told Reuters.
"A rebalancing is overdue but it may need a reality check in the markets stateside," Hari said.
A snapshot of the economic situation in China will come in on Tuesday with industrial-production figures, including data on the refining industry. The country, the world’s largest crude buyer, has been opening new plants, buoying import demand, according to Bloomberg.
Oil prices may be range-bound this week as China's sluggish economic recovery and a stronger US dollar could weigh the commodity down. But OPEC+ has indicated it would do whatever it takes to tighten supply and stabilise markets, CMC Markets analyst Tina Teng reaffirmed to Reuters.
Ongoing supply cuts are expected to erode oil inventories over the rest of this year, potentially driving prices even higher, the International Energy Agency said in its monthly report on Friday.
