Oil prices drop as market eyes Iraq exports resumption

August 22, 2023 (MLN): Oil prices slipped on Tuesday as the market awaited the resumption of Iraqi oil exports, which could ease the OPEC+ cut-induced supply crunch, while a weakening Chinese economy kept weighing on the global demand outlook.

Brent crude is currently trading at $84.28 per barrel, down by 0.21% on the day.

While West Texas Intermediate crude (WTI) is trading at $79.92 per barrel, down by 0.25% on the day.

Brian Martin and Daniel Hynes, analysts from ANZ Bank in a note to clients stated, "Crude oil struggled to keep its head above water on signs of supply tightness easing," as Reuters reported.

Iraq's oil minister Hayan Abdel-Ghani arrived in the Turkish capital Ankara to discuss several issues including the resumption of oil exports through the Ceyhan oil terminal, a source in the minister's office told Reuters on Monday.

Turkey halted Iraq's 450,000 barrels per day (bpd) of exports through the northern Iraq-Turkey pipeline on March 25 after an arbitration ruling by the International Chamber of Commerce (ICC).

More Iraqi crude oil coming on to the market could help alleviate the supply crunch for sour crude as the Organization of the Petroleum Exporting Countries and the allies (OPEC+) prolonged and deepened production cuts.

Meanwhile, gloom over the economic outlook in China, the world's second biggest oil consumer, continued to pressure oil prices and heighten worries about fuel demand.

China's central bank on Monday cut its one-year lending rate only moderately to the disappointment of the market which had expected more aggressive stimulus steps amid a rapid loss in economic momentum.

"China's economic weakness is weighing on oil prices and will create a ceiling for them this year, especially as Beijing appears committed to avoiding large-scale fiscal stimulus," Eurasia Group said in a note.

J.P.Morgan analysts estimated that global demand growth for mobility fuels decelerated to 0.6 mbd year-on-year for the reference week ending August 12.

Year-to-date, with China's base effect now out of the numbers, growth in demand for mobility fuels slipped to 1.6 mbd compared to the same period last year, they said.

Putting a floor to oil prices, U.S. crude oil, and gasoline inventories were expected to have fallen last week, a preliminary Reuters poll showed, as the American Petroleum Institute industry group is due to release data later on Tuesday.

The Energy Information Administration, the statistical arm of the U.S. Department of Energy, is due to release its own data on Wednesday.

The market is also focusing on preliminary U.S. August PMI data and the Federal Reserve's annual economic symposium at Jackson Hole both due later this week.

U.S. economic data over recent weeks has bolstered expectations for the Fed to keep rates higher for longer, putting a dampener on the demand outlook for oil and a broad range of consumer goods.

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