Oil prices slumped on Thursday as the seasonal slowdown in the winter and the uncertain economic outlook for China outweighed expectations of tighter supplies as production cuts in Saudi Arabia and Russia are extended.
Brent crude futures fell 24 cents to $90.36 a barrel at 04:12 GMT after a nine-session streak. West Texas Intermediate crude oil (WTI) futures fell 29 cents to $87.25 after seven sessions of gains.
Both indicators had soared earlier in the week after Saudi Arabia and Russia, the world’s two largest oil exporters, extended voluntary supply cuts until the end of the year. Many OPEC+ producers will continue with cuts until the end of 2024, which exceeds the cuts agreed in April.
Right now it’s hard to see any negative factors due to supply constraints. However, we also need to consider possible demand risks, such as the market entering a low season in terms of oil consumption in the fourth quarter.
Mixed data from China also affected prices, with overall exports contracting by 8.8% and imports by 7.3% YoY in August; however, crude imports increased by 30.9% year on year.
The weakness of Chinese data has slowed as trade data shows slower declines compared to market surveys, and the Chinese government has also introduced a number of policy-enhancing practices in the financial and real estate markets.
However, it is still too early to assess the pace of recovery in China’s demand, it is still expected to be better than July.
Concerns over increased oil production by Iran and Venezuela, which could offset some part of the Saudi and Russian cuts, also keep the market in check.
OPEC+ action is partially undermined by the return of volume sanctioned from Iran. Iran’s crude production has been higher since the start of the year, reaching 2.83 million barrels per day (bpd) in July from 2.55 million bpd in January.
Also, Venezuelan production poses an upside risk, as US officials are reportedly preparing proposals to ease sanctions should Caracas make progress with its plans to hold new presidential elections.
On the supportive front, US crude inventories are projected to fall by 5.5 million barrels in the week ended Sept. 1, according to figures from the American Petroleum Institute (API).
Official inventory data from the U.S. Energy Information Administration will be released on Thursday at 1500 GMT.