Oil prices edged lower on Monday because of concerns over lower demand, despite Opec and its allies extending their production cut pact and rising tensions in the Middle East following Iran’s alleged attempt to impede a British tanker in the Strait of Hormuz last week.
International benchmark, Brent crude was down 0.25 per cent at $66.55 per barrel at 10.36am UAE time. US crude West Texas Intermediate was at $59.96 per barrel, down 0.42 per cent.
China posted its slowest quarterly economic growth in at least 27 years, raising concerns about lower demand from the world’s largest crude oil importer. The country’s economic growth slowed to 6.2 per cent in the second quarter from a year earlier.
“A difficult trade environment and fading consumer sentiment put pressure on China’s economic growth in the second quarter. The economy has responded slowly to the government’s stimulus measures incorporated so far, including tax cuts and easier lending rules, as sentiment continues to be gloomy and investors remain cautious,” Julius Baer’s economist Sophie Altermatt said.
“We expect these headwinds to persist throughout the second half of the year and growth momentum to remain fragile despite improved economic activity in June,” she added.
A tropical storm that hit the Gulf of Mexico in the US during the weekend did not help oil prices move upwards as oil refineries continued to operate without a major disruption.
"Opec is doing a lot to keep oil prices higher but the problem is lower demand from China as economy slows down due to trade tensions with the US. There is also a huge oversupply in the market due to shale production in the US," Jaafar Al Taie, managing director of the UAE based Manaar Energy told The National.
Member countries of the Organisation of the Petroleum Exporting Countries (Opec) and its allies including Russia are cutting production by 1.2 million barrels per day to reduce global oil stocks and prop up prices. The deal was set to expire at the end of June, but was extended until March 2020.
“The whole geopolitical shock was keeping [oil prices] artificially high for some time but this geopolitical shock isn’t playing out. In other words, we’re not really seeing Iran’s crude yet being completely cut off from the market.”
Tensions between the US and Iran rose after US President Donald Trump’s administration decided to end waivers granted to eight countries allowing them to continue importing oil from the Islamic Republic. Following the decision in May, there were attacks on oil tankers as well as Saudi Arabia’s oil installations that pushed oil prices higher.
On the outlook for oil prices in the coming months, Mr Al Taie said oversupply will persist keeping a lid on prices.
“Unfortunately, we will see low oil prices persisting till 2020. China and trade war with the US and the whole demand picture of China and the US is always looking bad for 2019 and it will continue to look bad in 2020 keeping a lid on oil prices.”
