Oil prices fall on concerns of weak demand from China

Concerns about a slump in sugar demand have arisen after the country set a nominal growth target of 5% for this year, lower than market expectations of 5.5%.

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

Saumil Gandhi, Senior Analyst, Commodities, HDFC Securities, said, “Oil prices turned lower on Monday as demand from China is likely to be lower than market estimates. China has set a modest target of around 5% for economic growth this year, well below market expectations of 5.5% growth.

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

Besides, reports of an increase in oil production by the Organization of the Petroleum Exporting Countries (OPEC) in February on improving Nigerian supplies also put pressure on prices.

OPEC pumped 28.97 million barrels per day in February, up 150,000 barrels per day from January, according to a Reuters poll.

Oil prices were substantially higher last week. A report by Kotak Securities said, “WTI crude oil futures rose in four out of five trading sessions last week and closed at $79.68 per bbl, higher by 4.4%, as a jump in Chinese factory activity supported central offset the bank’s rhetoric and weak inventory figures.”

Crude oil processed by Indian refiners hit a record high in January, according to provisional government data, as the country boosted imports of Russian crude that shunned Western countries. Refinery output in the world’s third-biggest oil importer and consumer reached 5.39 million barrels per day in January.

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

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

“We expect prices to trade with a slight bearish bias due to the lack of any stimulus surprises from China ahead of Powell’s speech,” the report said.