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Oil pulled lower by weak Chinese data, wipes out OPEC-driven gains

Published 06/06/2023, 11:41 PM
© Reuters.

Investing.com -- Oil prices fell in Asian trade on Wednesday as weak Chinese trade data spurred more fears of slowing demand in the country, with prices having now reversed all gains made earlier this week on the back of supply cuts by the OPEC.

China's trade surplus sank to a 13-month low in May, driven chiefly by a surprise drop in exports as foreign demand for Chinese goods dried up. Imports also fell, signaling weak economic trends in the world's largest oil importer.

The readings added to recent data that pointed to a slowdown in China's post-COVID economic recovery, which further undermined bets that China will drive oil demand to record highs this year.

Brent oil futures fell 0.4% to $76.00 a barrel, while West Texas Intermediate crude futures fell 0.3% to $71.49 a barrel by 23:37 ET (03:37 GMT). Both contracts settled around 0.6% lower on Tuesday after a volatile session.

Crude prices had rallied as much as 3% at the beginning of the week, after Saudi Arabia pledged more production cuts in July. But they later reversed all early gains following a string of weak economic readings.

Other members of the Organization of Petroleum Exporting Countries and allies (OPEC+), particularly Russia, also appeared to be keeping production steady.

Still, the U.S. Energy Information Administration (EIA) said that oil markets will tighten in the second half of the year as supply cuts by Saudi Arabia and the OPEC+ go into effect, somewhat supporting prices. The agency expects Brent to trend just below $80 by end-2023.

Oil markets took mixed cues from industry data showing that U.S. crude inventories shrank more than expected in the prior week, as summer season demand heats up. But signs of an unexpected build in gasoline and distillate inventories raised questions over just how much fuel demand was improving, given that U.S. economic activity appeared to be cooling.

Other weak economic readings continued to pile in. Data on Wednesday showed that Australia’s economy barely grew in the first quarter of 2023.

This came after data earlier this week showed that U.S. service sector growth slowed substantially in May, while German factory orders contracted through April.

Fears of a global recession, which could stymie oil demand this year, have kept oil prices depressed despite multiple efforts from the OPEC to reduce supply and improve prices.

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