Crude Slides on Profit Taking as China's Macros Disappoint

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange accelerated losses in the afternoon session Monday, sending the international benchmark below $79 bbl as market participants digested weaker-than-expected macroeconomic data out of China where an uneven post-pandemic recovery undermines the outlook for fuel consumption.

Further pressuring the oil complex, Libya's energy ministry on Sunday said the shut-in production at the country's two largest oil fields -- Al Sharara and El Feel -- have been brought online following last week's disruption. Protests against the U.N.-backed government in Tripoli shut down at least two out of the nation's largest oilfields, taking offline around 500,000 bpd or 0.5% of global oil production. It remains unclear whether the brokered deal between protests and government forces will survive the tests of time. Libya has Africa's largest oil reserves, but its oil production has been frequently interrupted since the breakout of civil war over a decade ago.

The oil market is sensitive to the news of unplanned supply disruption as global oil balances are seen falling into a deeper shortfall in the second half of the year. Both Russia and Saudi Arabia are rapidly reducing oil production as part of the OPEC+ deal to remove 3.6 million bpd from the global oil market. Russian Energy Minister Alexander Novak said on Monday that Moscow will cut oil exports by 2.1 million metric tons for the third quarter, roughly in line with cuts of 500,000 bpd. "Russia will cut both pipeline and seaborne oil exports in August," added Novak.

On the macroeconomic data front, China reported on Sunday its gross domestic product expanded 6.3% during the second quarter on an annualized basis, outstripping growth in the first quarter but missing market expectations. Meanwhile, youth unemployment across urban areas spiked to a new record high 21.3% as business and consumer confidence takes a hit amid the faltering recovery. Youth employment is being closely watched by economists and the government as a record 12 million university graduates are expected to enter the Chinese job market this year.

National Bureau of Statistics spokesperson Fu Linghui noted on Monday that youth unemployment is likely to get worse before it gets better as China's economy faces multiple headwinds from geopolitical and macroeconomic fronts.

Furthermore, China's retail sales for June rose by 3.1%, below the 3.5% expected.

Meanwhile, industrial production for June rose by 4.4% from a year ago, better than the 2.7% forecast.

The fresh data indicated continued uneven post-pandemic recovery, with faltering private confidence, record-high youth unemployment and overhanging risk in the property market.

At settlement, front-month West Texas Intermediate on NYMEX fell $1.27 to $74.15 bbl, and ICE September Brent contract declined $1.37 to $78.50 bbl. NYMEX August RBOB futures dropped back $0.0120 to $2.6317 gallon, and August ULSD futures fell to $2.5642 gallon, down $0.0337 on the session.

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

Liubov Georges