Oil prices experienced a decline on Tuesday, driven by fresh data that intensified concerns about China’s post-pandemic economic recovery. However, the prospect of extended supply cuts by key OPEC+ members helped limit the extent of the losses.
As of 0754 GMT, Brent crude futures for November stood at $88.35 a barrel, down 65 cents, while U.S. West Texas Intermediate crude (WTI) October futures dipped 17 cents to reach $85.38 per barrel.
China, the world’s second-largest economy, plays a pivotal role in supporting oil demand for the remainder of the year. Nevertheless, the nation’s sluggish economic activity has dampened market optimism, as stimulus efforts have fallen short of expectations.
A private-sector survey conducted on Tuesday revealed that China’s services sector had expanded at its slowest pace in eight months in August. Weak demand continued to plague the world’s largest oil importer.
Analysts noted that despite China’s recent attempts to bolster its economy, the market had already factored in these efforts, offsetting the support from anticipated oil supply cuts.
In addition to concerns about China, data from Europe also contributed to the pessimistic outlook. The decline in euro zone business activity accelerated more rapidly than initially estimated last month, with the dominant services industry within the bloc contracting. This survey suggests that the European Union could face the risk of entering a recession.
Saudi Arabia is widely anticipated to extend voluntary oil cuts into October, while Russia is expected to unveil a new OPEC+ supply cut agreement this week, according to its deputy prime minister.
Moscow had previously announced a 300,000 barrels per day (bpd) cut in exports for September, following a 500,000 bpd reduction in August. Riyadh, on the other hand, is likely to roll over a voluntary 1 million bpd cut into October.
Analysts from ING expressed that, considering market expectations, it is improbable that these two major producers would deviate from an extension and risk a market sell-off.
Meanwhile, in Japan, the world’s third-largest economy, household spending in July fell by 5.0% year-on-year, exceeding the forecasted decline of 2.5%. This marked the fifth consecutive month of falling household spending.
