Crude oil prices started this week with a dip after a series of economic reports from China released towards the end of last week suggested weakening oil demand.
These included new home prices, which were down palpably, industrial output, which appeared to be slowing, and unemployment figures inching higher. The reports pushed the benchmarks to a weekly loss despite expectations of a gain and the loss extended into this week.
On the bullish side, the situation in the Middle East remains a leading factor as does the escalation between Russia and the Ukraine after the latter made an incursion into Russian territory.
“Persistent concerns about slow demand in China led to a sell-off,” Nissan Securities analyst Hiroyuki Kikukawa told Reuters. “Still, tensions in the Middle East and the escalation of the Russian-Ukraine war, which pose supply risks, are underpinning the market,” Kikukawa added.
“Near-term volatility is likely to remain elevated as markets remain on alert for a potential Iran response,” Standard Chartered investment strategist Han Zhong Liang told Bloomberg. He added that “the longevity of the geopolitical risk premium hinges on whether there is a realized impact to the demand-supply balance.”
U.S. Secretary of State yesterday arrived in Israel to seek a ceasefire agreement between Tel Aviv and Hamas but the latter, according to Reuters, demonstrated it had doubts about the success of Anthony Blinken’s mission, accusing Israel of undermining mediation efforts.
Despite the geopolitical premium chances are that pressure on oil prices will increase, after China’s customs administration reported gasoline exports in July had declined by over 35% due to weaker profit margins in the refining sector.
China exported5.77 million barrels daily of gasoline last month, for a total of 790,000 tons. That’s down from 1.22 million tons a year earlier and also down from the 930,000 tons in gasoline exports booked for June, the customs data showed.
By Irina Slav for Oilprice.com
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This means that the rate of growth slows down from 7%-10% a few years ago to 5% this year. This naturally slows down any major economy in the world let alone China's and reduces demand for commodities. In a nutshell, China's economy is going through a period of consolidation rather than more expansion.
Naturally Western disinformation media and discredited organizations like the IEA jump on this opportunity to exaggerate what is in effect a natural slowdown resulting from maturity into real malaise forgetting that China's economy's growth of 5% this year is the highest among major economies of the world with the exception of India growing at 6.8% and also 2.5 times faster than the United States' and 10 times than the EU's.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert