DTN Oil

WASHINGTON (DTN) -- Erasing overnight gains, West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Wednesday's session with sharp losses after trade data out of China showed August crude oil imports fell more than 1 million barrels per day (bpd) from a year earlier, underscoring fears over demand destruction in Asia's largest economy, while recessionary risks in Europe tied to a deepening energy crisis sent the international Brent crude benchmark below $90 per barrel (bbl) for the first time since before Russia's invasion of Ukraine.

China imported 9.32 million bpd of crude oil in August, according to official government statistics, which was 1.1 million bpd lower than August 2021. Russia was the leading exporter of crude oil into China with 1.8 million bpd, followed by Saudi Arabia with 1.5 million bpd.

Refining throughput in China last month fell to 13.1 million bpd, down 134,000 bpd from July's throughput rate and 800,000 bpd below the comparable 2021 level.

Ongoing lockdowns in China's major metropolitan cities, weakening manufacturing output and a derailed real estate market could all have contributed to renewed weakness in China's oil consumption. Export data out of Beijing also fell short of analyst expectations, with China reporting a 7.1% monthly increase in August exports compared with an 18% gain in July.

In Europe, plans for a new stimulus package to offset surging energy costs for struggling consumers and businesses dominated headlines Wednesday. Liz Truss, United Kingdom's newly anointed prime minister, is reportedly lobbying for a £130 billion stimulus package aimed at capping consumer energy bills for the next 18 months. The measure is estimated to cost around 6.5% of U.K. gross domestic product and comes with a massive price tag at the time when headline inflation is running at around 10%. Some economists suggest that the actual cost might be closer to 9% of U.K. GDP if combined with Truss' other fiscal policies, including canceling a planned increase in corporate tax and cutting national insurance.

Similar measures have been announced in Germany, Finland, and Sweden, among other countries that are sensitive to a cutoff of Russian gas supplies following the Sept. 2 announcement that Nord Stream 1 gas flow to Europe is halted indefinitely.

The shutdown threatens additional closures of Europe's heavy industry such as steel and fertilizer production that heavily rely on natural gas, as well as hiking energy bills for households ahead of the heating season.

While stimulus policies will likely ease near term inflationary pressures by offsetting energy costs this winter, the effective increase in disposal income and relief to business suggest they will be higher medium-term implication for consumer prices.

Tuesday afternoon, traders also positioned ahead of weekly release of U.S. inventory data beginning with the private survey from the American Petroleum Institute due out at 4;30 PM ET, followed by the U.S. Energy Information Administration report at 11 AM ET Thursday.

U.S. oil inventories are projected to have increased by 300,000 bbl for the week ended Sept. 2, with estimates ranging from a decrease of 2.7 million bbl to an increase of 3 million bbl. Gasoline stockpiles are expected to have decreased 1.4 million bbl, while distillate inventories are seen to have risen 200,000 bbl. Refinery use likely slipped by 0.3% to 92.4%.

At settlement, NYMEX October West Texas Intermediate futures dropped $4.93 to $81.94 bbl, while Brent for November delivery settled the session $4.83 lower at $88 bbl -- the lowest settlement on the spot continuous chart since late January. NYMEX October RBOB futures declined 10.82 cents to $2.3077 gallon, and NYMEX October ULSD futures bucked the trend, gaining 1.22 cents with a $3.5860 gallon settlement.

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