Oil Futures Sink as China's Data, Kabul Fall Sour Sentiment

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Nearby delivery month oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled the first session of the week lower, pressured by a strengthening U.S. Dollar Index and falling equities following a surprisingly sharp slowdown in some of China's key economic indicators and a deteriorating geopolitical situation in the Middle East punched by the Taliban's takeover of Afghanistan's capital and largest city, Kabul.

The Taliban victory in Afghanistan is now all but complete. After two decades and some $2 trillion spent to rebuild the Afghan central government and democratic institutions, the country collapsed under control of Taliban insurgency in a matter of days, ushering far-reaching consequences not only for Afghanistan and the Middle East, but also for American foreign policy at large.

So far, Taliban stated their willingness to undertake a peaceful transition of power and ensure rule of law and security for the civilians in Kabul. Thousands, meanwhile, rushed to Kabul airport in a desperate attempt to flee the country, prompting the U.S. military to suspend evacuations.

U.S. President Joe Biden, who previously said Afghan forces had to fight back against the Taliban militia, was due to address the nation on Afghanistan at 3:45 p.m. EDT. Experts believe the U.S. and its former coalition partners will likely need to fully readjust their policies and posture towards Taliban-controlled Afghanistan.

Following breaking news from Afghanistan, global shares retreated, the dollar strengthened, and crude futures fell as much as 2% in intra-session low. On the session, NYMEX September West Texas Intermediate futures retreated $1.15 to settle just above $67 barrel (bbl) at $67.29 bbl, and international crude benchmark Brent contract for October delivery declined $1.08 to $69.51 bbl settlement. NYMEX September RBOB contract plunged 6.17 cents or 2.35% to $2.2009 gallon and NYMEX September ULSD futures moved down nearly 3 cents to $2.0483 gallon.

Further souring investors' sentiment, a trio of weaker-than-expected economic data out of China released over the weekend showed a broad-based slowdown in the world's second largest economy. China's retail sales, a key measurement of consumer spending, fell 0.13% in July, down from the 0.48% increase in June, and below the projection for 11.5% annualized growth. Industrial production, a gauge of activity in the manufacturing, mining and utilities sectors, grew by 6.4% in July from a year earlier after an 8.3% rise in June. July's figure was below the median forecast for a rise of 7.9%.

"Given the combined impact of sporadic local outbreaks of COVID-19 and natural disasters on the economy of some regions, the economic recovery is still unstable and uneven," said China's National Bureau of Statistics spokesman Fu Linghui.

Faced with growing outbreaks, Chinese health officials tightened restrictions on mobility and businesses in several metropolitan areas, prompting economists and investment banks to downgrade China's growth this year.

Domestically, investors are tracking Tropical Storm Fred, which intensified upon its approach to the Florida Panhandle and will continue to do so until its landfall tonight. The storm brings expectations for heavy flooding and storm surge along the coast of the Panhandle and Big Bend area, disrupting gasoline demand. DTN Weather doesn't rule out hurricane strength at landfall, but it will likely be close. The remnants of Fred are expected to push northeast to the Appalachians this week and locally heavy rain will be the main threat. The development is bearish for regional gasoline demand, with seasonal decline in consumption already seen steeper this year due to the lack of commuting to work and the rising tally of COVID-19 infections. The U.S. Energy Information Administration forecasts gasoline consumption won't return to pre-pandemic levels even next year, averaging about 9 million barrels per day (bpd), some 300,000 bpd below 2019-levels.

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

Liubov Georges