Oil markets suffer four quarters of losses as concerns grow over China slowdown
Oil markets are on the verge of a year-long slide in prices with a fourth consecutive quarter of losses, as concerns mount over China’s economic slowdown.
Both major benchmarks are being weighed down by sluggish economic growth, which has spooked expectations of fuel demand.
While prices rose above $75 per barrel in this morning’s trading – a slight uptick on trading earlier this week – this is nearly $5 per barrel less than the cost of oil just three months ago.
Brent Crude is up 0.55 per cent at $74.75 per barrel while WTI Crude has risen 0.43 per cent to $70.16 per barrel.
There are persistent concerns in the market over demand in China, the world’s second largest oil consumer, which has consistently posted slower-than-expected recoveries in manufacturing and demand.
This has contributed to a gloomy economic sentiment amid rising interest rates across developed economies to tame inflationary pressure.
Barbara Lambrecht, commodity analyst at Commerzbank, did not expect any upcoming positive economic data from the US labour market to enable prices to rebound.
Instead, it would just provide more for the Federal Reserve to raise interest rates.
“Even if sentiment were to have brightened in the manufacturing and service sectors, market participants would only interpret this as meaning that the Fed will have room to step on the brakes to a greater extent. In turn, this would result in oil demand weakening – admittedly not in the short term, but with an increased probability in the medium termn” she explained.
In her view, “sentiment remains muted” and there would need to be a succession of reports about declining inventories to raise supply concerns and drive up prices turnaround.
Nevertheless, she shared the IEA and OPEC’s bullish forecast for prices later this winter, with Commerzbank still convinced a looming high supply deficit will drive prices up in the second half of the year.
HSBC calculates a deficit of 2.3m barrels per day in the second half of the year.
It added, the recent drop in prices reflected OPEC’s limited ability to influence prices in such economic headwinds.
“Despite the announcements of two fresh rounds of cuts from OPEC+/Saudi Arabia, crude prices have largely remained below $80 per barrel as the market has been driven less by fundamentals and more by macroeconomic concerns,” it said.