Oil prices dip as weak China data overshadows US inventory drop

August 16, 2023 (MLN):  Oil prices slide down in early trading on Wednesday as weak economic data from China, the world’s largest oil buyer, continued to weigh on the market.

Brent crude is currently trading at $84.66 per barrel, down by 0.27% on the day.

While West Texas Intermediate crude (WTI) is trading at $80.8 per barrel, down by 0.23% on the day.

U.S. crude stocks fell by around 6.2 million barrels in the previous week, as per the American Petroleum Institute figures cited by market sources.

Moreover, later today, U.S. government data on inventories will be released.

The decline in U.S. inventories was not enough to offset the market losses caused by the risks of weak economic data from China.

ANZ analysts said in a client note, "Concerns that China's faltering economy will weigh on demand offset tight supply in the oil market," as Reuters reported.

"Crude inventories at the Cushing hub are seen to be falling to their lowest level since April. Asian refineries are also snapping up all available US cargoes of oil," they added.

China's economic activity data for July released on Tuesday remains the key bearish market driver, after retail sales, industrial output, and investment figures failed to match expectations, fuelling concern over a deeper, longer-lasting slowdown in growth.

The July activity data has prompted some economists to flag risks that China, the world's biggest oil importer, may struggle to meet its growth target of about 5% for the year without more fiscal stimulus.

Beijing cut key policy rates to shore up activity and some analysts are hoping more stimulus measures will be implemented soon to jolt the economy and support demand for commodities such as oil.

"The persistent negative China data will raise the probability of increased stimulus measures, which would see a rise in commodity demand on broadly low inventory levels delivering a jump in prices," analysts at National Australia Bank said.

The outlook in the fourth quarter will "depend on the macroeconomic situation in China, primarily, albeit it looks like Saudi will continue to address that via their cuts, if needed", said Rystad Energy's research director Claudio Galimberti.

Supply cuts by Saudi Arabia and Russia, part of the OPEC+ group comprising the Organization of the Petroleum Exporting Countries (OPEC) and allies, have pushed up oil prices over the past seven weeks.

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