Oil sank for a third consecutive day as Chinese economic data disappointed and the spread of the delta coronavirus variant hurt prospects for global demand.
West Texas Intermediate slumped as much as 3.2% as fresh outbreaks in Asia have started weighing on China’s economy, with retail sales growth and industrial output slowing. Covid-19 cases are at or near records in nations including Thailand, Vietnam and the Philippines. Stock markets were also weaker, adding to the pressure on oil.
After rallying in the first half, crude prices have stuttered since mid-July. The spread of the delta variant, including in key consumer China, has undermined the outlook for consumption as restrictions on mobility are reintroduced. At the same time, OPEC+ has proceeded with plans to gradually increase production, rolling back the supply curbs it imposed in the early days of the pandemic.
“Crude oil and other growth dependent commodities such as industrial metals continue to struggle amid a deteriorating short-term outlook,” said Ole Hansen, head of commodities research at Saxo Bank A/S. “The market is increasingly focusing on the world’s two biggest consumers with sentiment in the U.S. taking a knock, while data out of China continues to flash red alert.”
China’s oil refining slumped to the lowest level in 14-months as private processors scaled back operations amid a crackdown by authorities. Daily crude processing fell below 14 million barrels a day last month for the first time, and to the least since May 2020, according to Bloomberg calculations based on government figures released on Monday.
The nation has been dealing with its most widespread Covid outbreak since the initial cases in 2020, with fresh lockdowns imposed. Data on Monday showed China’s economic activity slowed more than expected last month, with retail sales and industrial output missing forecasts, while unemployment rose.
As the market has wobbled in recent weeks, money managers have turned less positive toward U.S. crude futures. Speculators now hold their smallest outright long position in WTI since April 2020.
There are signs U.S. shale producers are ramping up activities. The total number of rigs searching for oil across the country rose by 10 last week to 397, marking the biggest weekly jump since April, according to Baker Hughes Inc. data on Friday. Most of the gains came outside the Permian Basin.