Oil prices fall on China trade data, stronger dollar

September 08, 2023 (MLN): Oil prices continued to decline on Friday due to concerns regarding the shrinkage of China's trade surplus in August and the strengthening of the U.S. dollar.

These factors offset the earlier gains that were prompted by supply cuts from key producers such as Saudi Arabia and Russia.

Brent crude is currently trading at $89.48 per barrel, down by 0.49% on the day.

While West Texas Intermediate crude (WTI) is trading at $86.36 per barrel, down by 0.59% on the day.

To note, both benchmarks experienced a surge earlier in the week to reach 10-month highs amid the extension of the voluntary supply cuts by the world's leading oil exporters, Saudi Arabia and Russia, until the end of the year.

These additional cuts complemented the measures established in April by various OPEC+ producers, which are set to continue until the conclusion of 2024.

Despite these bullish signals, China's bumpy recovery, and the strong U.S. dollar, are weighing on prices, said Priyanka Sachdeva, senior market analyst from Phillip Nova, as Reuters reported.

Investors expect U.S. interest rates to linger at 20-year highs, and that has unleashed the dollar, making it more expensive to buy crude in other currencies.

The U.S. dollar index was close to reaching a six-month high last Friday, currently hovering around 104.809.

"Investors took profits after the recent rally which was driven by concerns over tighter supply following extended production cuts in Saudi Arabia and Russia," said Tatsufumi Okoshi, senior economist at Nomura Securities.

"The market has factored in the news of lower supply and it would need clear signs of stronger global demand, especially in China, to move higher," he said, noting investors' consensus is that Beijing's stimulus has so far failed to boost to its economy.

China’s trade surplus narrowed to $68.36n in August 2023 as compared to a surplus of $78.65bn recorded in the same month of last year.

Exports dropped 8.8% YoY to $284.87 billion in August 2023, in addition to a 14.5% YoY fall in the previous month

This marks the fourth consecutive month of declining exports.

Meanwhile, imports fell by 7.3% YoY to $216.51bn, as compared to the fall of 12.4% in the previous month.

But China's crude imports surged 30.9% last month as refiners built inventories and increased processing to benefit from higher profits from exporting fuel.

A bigger-than-expected draw in U.S. crude oil inventories lent muted support to oil prices.

U.S. crude oil stockpiles fell for the fourth consecutive week, with inventories down more than 6% in the last month, as oil refiners run at high rates to keep up with global energy demand, Energy Information Administration data showed on Thursday.

Crude inventories fell by 6.3m barrels, triple the 2.1m barrel drop that analysts expected.

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