Oil prices fall amid China economic concerns

The Asian country's inflation turned positive last month

Chaozhou, China. The IEA expects demand to expand by 2.2 million bpd this year, supported by China’s economic recovery. Source: Xinhua

Oil prices fell on Monday after two straight weeks of gains amid concerns over China’s economic recovery.

Brent, the benchmark for two thirds of the world’s oil, was trading 0.10 per cent lower at $90.56 a barrel at 9.05am UAE time. West Texas Intermediate, the gauge that tracks US crude, was down 0.45 per cent at $87.12 a barrel.

“Oil still looks like it wants to keep this rally going and it could if further evidence emerges that China is stabilising,” said Edwad Moya, senior market analyst at Oanda.

“If the US dollar also starts to weaken, that could provide an additional layer of underlying support for crude prices.”

Both benchmarks surged to 10-month highs last week after Saudi Arabia and Russia said they would extend supply cuts of a combined 1.3 million barrels per day to the end of the year.

The International Energy Agency and Opec will release their monthly oil market reports this week.

The IEA expects demand to expand by a record 2.2 million bpd this year, supported by a recovery in China’s economy, the second largest in the world.

However, the Asian country's post-coronavirus economic recovery has lost momentum mainly due to a deepening property slump and weak consumer spending.

China, the world’s largest crude importer, has announced a string of stimulus measures over the past few weeks, including halving the stamp duty on stock transactions and easing mortgage rates.

China's consumer price index rose by 0.1 per cent in August, after falling by 0.3 per cent in July, the National Bureau of Statistics said at the weekend.

"Inflation in China turned positive in August ... after a dip into deflation in July," said Edward Bell, senior director, market economics at Emirates NBD.

"Transport and hospitality costs all seemed to be behind the higher CPI print though producer prices are still negative, falling 3 per cent [year over year] although ticking up from a 4.4 per cent drop in July.

"The deflationary signal in July came amid anxiety that China’s economy is headed from a disorderly unravelling as debt problems in the property sector weigh on growth."

MUFG, Japan’s largest lender, has maintained its Brent crude target of $84 a barrel and $87 a barrel for the end of 2023 and 2024, respectively, with a surge back north of $100 a barrel.

Swiss lender UBS expects a market deficit of more than 1.5 million bpd in the fourth quarter of 2023 and with oil inventories set to fall further over the coming months, it is forecasting Brent to rise to $95 a barrel by the end of the year.

A strong dollar has been weighing on oil prices.

The US Dollar Index, a measure of its value against a weighted basket of major currencies, jumped to a six-month high of 105.03 last Wednesday on positive US services sector data. It is currently down 0.36 per cent at 104.71.

A stronger greenback makes dollar-denominated oil more expensive for holders of other currencies.