Oil prices were slightly lower on Tuesday as weak economic data from China, the world’s second-largest economy and top crude importer, offset tight supply concerns.
Brent, the benchmark for two thirds of the world’s oil, was trading 0.48 per cent lower at $85.02 a barrel at 9.30pm UAE time, while West Texas Intermediate, the gauge that tracks US crude, was down 0.43 per cent at $81.45 per barrel.
On Monday, Brent settled 1.21 per cent higher at $85.43 a barrel, while WTI was up 1.51 per cent at $81.80.
Oil prices recorded their biggest monthly gain since early 2022 in July amid falling crude inventories, Opec supply cuts, and as cooling inflation eases concerns of aggressive interest rate increases by central banks.
“The crude demand outlook is getting a boost on soft landing hopes for the US and Europe,” said Edward Moya, senior market analyst at Oanda.
“The ace up the sleeve of oil bulls is that the energy market is still awaiting massive stimulus from China that should boost global growth prospects.”
However, manufacturing activity in the Asian country fell for the fourth straight month in July.
China's Caixin/S&P Global manufacturing purchasing managers' index dropped to 49.2 last month, from 50.5 in June, marking the first decline in activity since April. The 50-point index mark separates expansion from contraction.
Analysts were forecasting a PMI figure of 50.3, according to Reuters.
“Manufacturing conditions in China moderated slightly in July. Firms signalled a marginal fall in production amid a fresh decline in overall new business,” the survey said.
“Muted foreign demand was a key factor weighing on total sales, with new export orders down noticeably in July.”
Meanwhile, manufacturing activity in India, the world’s third-largest crude importer, eased in July.
The S&P Global India PMI stood at 57.7 in July, in line with the reading of 57.8 in June.
“The Indian manufacturing sector showed little sign of losing growth momentum in July as production lines continued to motor on the back of strong new order growth,” said Andrew Harker, economics director at S&P Global Market Intelligence.
“Pressure continued to come on capacity, prompting firms to expand employment solidly again, a trend that is likely to continue in the months ahead should demand remain strong.”
This week, Goldman Sachs reaffirmed its Brent forecast of $86 a barrel by December and said it expects prices to rise to $93 in the second quarter of 2024.
The US investment bank also raised its 2023 oil demand estimate by 550,000 barrels per day, and said that crude consumption reached a record high of 102.8 million bpd this month.
Last month, Saudi Arabia, the world's largest oil exporter, said it would extend its voluntary output cut of 1 million bpd until August.
Russia has also announced an additional output reduction of 500,000 bpd for this month.
On June 4, Opec agreed to keep its current output policy in place until the end of 2024.
The group has total production curbs in place of 3.66 million bpd, or about 3.7 per cent of global demand, including a 2 million bpd reduction agreed on last year and voluntary cuts of 1.66 million bpd announced in April.