Oil Futures Edge Lower as China's Crude Oil Imports Slow

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange posted modest losses for the first day of a new trading week, with the U.S. crude benchmark retreating from a 2-1/2 year high after China's crude oil imports unexpectedly fell to a 2021 low last month, raising concerns over demand growth in the world's second largest oil consumer, while underlining concerns over rising inflation in the United States and Eurozone capped gains for the broader markets.

China's crude oil imports dropped 15% in May from a year earlier to 40.97 million tons or 9.65 million barrels per day (bpd) -- the lowest daily arrivals this year, according to the data released this morning by the General Administration of Customs. This compares to an import rate of 9.82 million bpd in April and 11.3 million bpd in May last year when Chinese buyers snapped up cheap oil amid the rapid spread of coronavirus in the United States and Europe. China's shrewd move helped pull the global oil market out of a downward spiral last year and put it on a path to eventual recovery.

The nation was forecasted to import more crude this year than in 2020 due to its own economic recovery, as well as a steady expansion of refining capacity. Last month's sluggish figures, however, might give pause to the outlook.

The import decline is largely attributed to maintenance activity at Chinese refineries, with about 1.2 million bpd of refining capacity estimated to have been idled last month, up from 1 million bpd in April, according to Refinitiv.

However, lower crude oil imports might also reflect higher prices that hit 2-1/2 year high on Friday fueled by expectations of a summer demand rebound in developed markets.

Friday's nonfarm payroll report showed the U.S. economy added a less-than-expected 559,000 jobs in May, missing market consensus for a second month in a row, while raising concern over wage inflation triggered by a lack of an available labor force.

With economy growing at an estimated rate of 10.3%, according to the Atlanta GDP Now tracker, the decline in the labor participation rate to 61.6% -- the lowest since the late 1970s -- suggests some hesitance or unwillingness among Americans to rush back into the workforce. Currently, there are still about 7.6 million jobs missing compared to pre-pandemic levels despite a record-breaking 8.1 million open positions listed in May, according to the latest Job Openings and Labor Turnover Survey. Last month, average hourly earnings rose to $30.33 from $30.18 in April and $29.74 in May 2020, offering evidence of increased pay across the economy.

Markets will get an update on inflationary dynamics with Thursday's release of the May Consumer Price Index from the Commerce Department. Consensus calls for CPI index to have increased 4.6% year-on-year last month after April's multiyear jump of 4.2%.

This might, in theory, cap demand growth for key refined fuels, such as gasoline and distillates, with less people driving to work and prices for fuel and other consumer goods rising.

Despite Federal Reserve shrugging at inflation concerns while highlighting mediocre job growth, equity markets declined on Monday as Wall Street weighed inflation risks on post-pandemic recovery.

The Dow Jones Industrial Average fell 147 points to 34,608, the S&P 500 dipped 0.24% and the NASDAQ was up 0.18%. U.S. dollar declined 0.22% against the basket of foreign currencies to 89.905 session low, reversing some of last week's tepid gains.

On the session, NYMEX July West Texas Intermediate futures eased $0.39 to $69.23 per barrel (bbl) and ICE August Brent crude futures declined $0.40 to settle at $71.49 bbl. NYMEX July ULSD futures fell 0.43 cents to $2.1156 gallon, with July RBOB futures shedding 1.84 cents to $2.1931 gallon.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges