Oil prices fall on concerns of weak demand from China

Concerns of a decline in Chinese demand have cropped up after the country set a modest growth target for this year at 5%, less than market expectations of 5.5%.

At around 5pm, the May Brent contract on the Intercontinental Exchange (ICE) traded at $84.46 per barrel, down 1.60% from previous close. West Texas Intermediate (WTI) futures fell 1.56% to $78.44 per barrel.

Saumil Gandhi, senior analyst for commodities at HDFC Securities, said, “Oil prices turned lower on Monday as demand from China is likely to lower than what market had earlier estimated. China set a modest target for economic growth this year of around 5%, lower than market expectations of 5.5% growth.”

China set a modest target for economic growth this year of around 5% at the annual session of its National People’s Congress (NPC). Last year, the country grew by just 3% due to the impact of the long-drawn Covid-19 restrictions, commonly known as the government’s ‘Zero Covid’ policy.

Further, reports of an increase in oil output by Organization of the Petroleum Exporting Countries (Opec) in February, led by a recovery in Nigerian supplies, also weighed on prices.

According to a Reuters survey, the Opec pumped 28.97 million barrels per day in February, up 150,000 barrels per day from January.

Oil prices were largely higher last week. A Kotak Securities report said, “WTI Crude oil futures gained for four out of five trading sessions in the previous week and closed at $79.68 per bbl, up by 4.4%, as a rebound in Chinese factory activity offsets hawkish central bank rhetoric and weak inventory data.”

It added that crude oil processed by Indian refiners reached record levels in January, as per provisional government data, as the country boosted imports of Russian crude that Western countries shunned. Refinery throughput in the world’s third-largest oil importer and consumer reached 5.39 million barrels per day for January.

Meanwhile, US commercial crude oil inventories rose 1.2 million barrels from previous week, which also weighed on prices. At 480.2 million barrels, US inventories are about 9% above the five-year average for this time of year.

Total motor gasoline inventories, however, fell 0.9 million barrels from last week and are about 5% below the five-year average for this time of year. US crude oil refinery inputs averaged 15.0 million barrels per day during the week ended 24 February which was 31,000 barrels per day less than previous week’s average.

“We expect prices to trade with a slight bearish bias amid lack of any stimulus surprise from China coupled with risk off sentiments ahead of Powell’s speech,” the report said.