Oil prices slumped on Wednesday, continuing their 1% decline in the previous session as concerns over China’s struggling economy outweighed a tight supply caused by declining US inventories.
Brent crude futures fell 38 cents to $84.51 a barrel at GMT 0456, while West Texas Intermediate crude (WTI) fell 35 cents to $80.64 a barrel.
Both benchmarks fell to their lowest level since August 8 on Tuesday.
Concerns that China’s faltering economy will put pressure on demand offset tight supply in the oil market.
On the supply side, crude oil inventories at the US Cushing hub fell to their lowest level since April. Asian refineries also consume all available US oil cargoes.
U.S. crude inventories fell by about 6.2 million barrels last week, according to market sources citing figures from the American Petroleum Institute (API). This represents a much larger amount than analysts’ expectations for a drop of 2.3 million.
The US government’s stock data will be released on Wednesday at 1430 GMT.
China’s July economic activity data, retail sales, industrial production, and investment figures failed to meet expectations. Concerns about a deeper and longer-lasting slowdown in growth are mounting and remain the main driver of the market downturn.
July activity data indicates that China, the world’s largest oil importer, may struggle to meet its growth target of around 5% for this year without further fiscal stimulus.
Beijing has lowered key policy rates to support activity, with more stimulus measures expected soon to be implemented to stimulate the economy and boost demand for commodities like oil.
Meanwhile, the ongoing negative Chinese data will increase the likelihood of stimulus measures that will contribute to the demand for the commodity, with widespread low inventory levels giving rise to a jump in prices.
While Saudi Arabia seems likely to continue to address this issue with cuts if necessary, the outlook for the fourth quarter will primarily depend on the macroeconomic situation in China.
Supply cuts by Saudi Arabia and Russia, which are part of OPEC+, have contributed to the rise in oil prices over the past seven weeks.