Poor manufacturing numbers across the globe forced oil downward as investors worried an economic slowdown would impact the global demand for energy.
West Texas Intermediate dropped 4.8%, landing at $94 per barrel Monday, beginning the new month down following its first two consecutive months of declines since late 2020. Over the weekend, official Chinese numbers showed a decline in Chinese factory activity, as periodic lockdowns, and dysregulated orders and disrupted supply chains produced by past lockdowns took their toll. Meanwhile purchasing managers indexes in South Korea and the euro-region’s four largest members also saw declines.
Harry Altham, an energy analyst for EMEA and Asia at StoneX Group wrote in a note that the Covid-19 resurgences in China and its stringent, zero-tolerance lockdown measures would, “negatively impact oil demand until at least November of this year, when a strategic change in Covid policy could be announced.”
On a brighter note, Libya’s oil production has resumed after a series of shutdowns due to political instability. Oil Minister Mohamed Oun noted in an interview that production has risen to 1.2 million barrels per day, the highest it has been since early April.
Russian flows have been disrupted, as numerous buyers shun the nation’s crude output over the geopolitical situation in Ukraine. However some traders are beginning to price in a possible increase in demand as the European Union has recently made several amendments to the sanctions regime which will allow EU traders to deal in Russian crude, and it is expected as winter closes in Europe may become more open to normalizing trade relations with Russia to increase flows of Russia’s all important natural gas supply.
All of this has made oil somewhat volatile lately, as underlying signs of market tightness compete with perceptions of economic slowdowns and reduced demand.
Next up, traders will look to the next OPEC+ meeting where policy for September will be set. The US has been lobbying Saudi Arabia to open the flows, to drop the price and place pressure on Russia, however the House of Saud has resisted these calls, saying they are solely committed to maintaining a stable market. Most analysts expect there will be no change in that policy objective.
