Oil tumbled further as weaker Chinese data offset positive progress on the US debt ceiling draft
Oil prices extended losses in the early hours of Wednesday as concerns about slowing demand at the largest oil importer outweighed some positive progress on the US debt ceiling draft after weaker-than-expected Chinese economic data was released.
Brent crude futures for August delivery slipped 15 cents at 0656 GMT to $73.56 a barrel, while West Texas Intermediate crude (WTI) fell 14 cents to $69.32 a barrel. Earlier gains reversed after China manufacturing data was released. Both benchmarks fell by more than 4% on Tuesday.
Brent's July contract, due Wednesday, and the WTI benchmark index are on track to post monthly decreases of more than 7% and 9%, respectively.
China's manufacturing activity contracted faster than expected in May as the official manufacturing purchasing managers' Index (PMI) fell to 48.8 from 49.2 in April. The result fell short of an estimate of 49.4.
While China's industrial output and investment in fixed assets grew slower than expected last month, markets are worried that China's demand for commodities is weakening faster than expected. The current pessimism surrounding China's commodity demand contrasts with the optimism earlier this year.
In the US, sentiment remained cautious despite legislation that Presidents Joe Biden and Kevin McCarthy mediated to raise the $31.4 trillion US debt ceiling and obtain new federal spending cuts. The US debt ceiling bill will be voted on Wednesday.
Depending on how the voting progresses for the rest of the week, we can expect a similar bullish or bearish effect on the oil market. Traders will be cautious ahead of the news feed.
The maturity of the loan almost coincides with the June 4 meeting of the Organization of the Petroleum Exporting Countries, including Russia, and its allies. Market participants have differing views on whether the group will increase production cuts as the fall in prices puts pressure on the market.
Saudi Arabian Energy Minister Abdulaziz bin Salman last week warned short sellers on the belief that oil prices would fall, to a possible signal that OPEC+ could cut production.
However, comments from Russian oil officials and sources, including Deputy Prime Minister Alexander Novak, indicate that the world's third-largest oil producer tends to leave production unchanged.
Regarding the OPEC+ meeting, the market has no clear idea of what surprises it may encounter this time, but right now it is mostly priced as if no change.
If Brent prices drop to $70 a barrel again, OPEC will have to look for ways to further support the market.
Those who expect OPEC+ to continue its current production cuts say the group will be watching demand carefully, as oil futures are around levels where voluntary cuts were triggered last month.
In April, Saudi Arabia and other OPEC+ members announced another 1.2 million bpd oil production cuts, bringing the total volume of cuts made by OPEC+ to 3.66 million bpd.
Meanwhile, Saudi oil giant Saudi Aramco may cut its official selling prices for all Asian crude oil grades by another $1 per barrel in July, to the lowest level since November 2021.
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