Oil prices continue to drop on china's weakened demand

May 31, 2023 (MLN): Oil prices declined on Wednesday, continuing the downward trajectory, amid concerns regarding the fall in demand from China, the top oil importer as a result of weaker-than-expected economic data.

Brent crude is currently trading at $72.43 per barrel, down by 0.38% on the day.

While West Texas Intermediate crude (WTI) is standing at $69.33 per barrel, down by 0.25 % on the day.

Notably, both oil benchmarks, Brent crude and WTI fell sharply yesterday by 4.32% and 4.68% respectively.

This decline might also be attributed to the Ukrainian drones that struck Moscow yesterday.

One Russian politician called it the worst such attack since World War Two, while Kyiv was also hit by air for the third time in 24 hours.

A video shared on social media showed an explosion followed by a column of smoke rising into the sky.

Vivek Dhar, director of commodities research at the Commonwealth Bank of Australia, said "The current pessimism surrounding China's commodity demand stands in contrast to the optimism at the beginning of this year," as reported by Reuters.

Contraction in China’s manufacturing operations was faster than expected in May.

On weakening demand, the official manufacturing purchasing managers' index (PMI) decreased to 48.8 from 49.2 in April.

Vivek Dhar, director of commodities research at Commonwealth Bank of Australia stated that, "With China's industrial output and fixed-asset investment growing more slowly than expected last month, markets are worried that China's commodity demand is weakening more quickly than anticipated,"

Abdul Aziz bin Salman, Saudi Arabian Energy Minister alarmed the short sellers that oil prices would fall if OPEC+ aims towards an output contraction.

Whereas, Alexander Novak, Deputy Prime Minister, and some Russian oil officials indicated that China is towards leaving output unchanged.

He further added that Saudi Aramco may further reduce the selling price in July by $1 per barrel, resulting in mixed signals to the market regarding output.

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