Oil prices fell sharply on Monday, dragged down by disappointing economic data from the world’s largest crude oil importer and the world’s second-largest crude oil consumer.
The price of WTI and Brent crude fell by more than 5% as China’s central bank cut lending rates to light a fire under demand, as its July economic data soured on the back of China’s restrictive zero-Covid policy. Further dragging down China’s July economic data is its property crisis, which saw property investments fall by 12.3% in July—the fastest rate this year.
Both the disappointing economic data and the central bank rate cut came as a surprise to the market. Chinese policymakers now expect China to miss its targeted economic growth rate of 5-5.5% in the second half of the year.
The July data surprise sent WTI crashing to $87.22 per barrel, a $4.87 (-5.29%) on the day. Brent crude fell to $93.23 per barrel, a loss of $4.92 (–5.01%) on the day.
China’s oil refinery data was also a disappointment, with its refinery output falling to 12.53 million bpd—the lowest level since March 2020 and 8.8% lower than processing rates in July 2021 due to unplanned shutdowns at state-run refineries such as Sinopec and PetroChina and shrinking refining margins. Also in the mix is a new round of tax probes that the Chinese government is prepared to launch on private teapot refiners—another potential trigger for refinery slowdowns. Teapots account for one-fifth of China’s crude oil imports.
China imports more than half of the oil it consumes, mainly from Saudi Arabia, Russia, Iraq, and Oman.
The Iran factor also played into oil prices on Monday, with Iran suggesting that it could find a way to agree on a nuclear deal “in the near future” if the U.S. would consider its “red lines”. A finalized nuclear deal could send more oil barrels into the market.