Oil Declines on Stronger USD Amid China's Property Crisis

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude on the Intercontinental Exchange kicked off a new trading week with modest selling sparked by a stronger U.S. dollar after China's largest real estate developer, Country Garden, suspended payments on its bond obligations, fueling concerns over potential economic contagion from Beijing's property crisis.

Monday's trading was dominated by bearish headlines out of China, where an ongoing property crisis dealt another blow to the slowing economy as the real estate giant is caught in an apparent cash crunch. Country Garden's shares plunged to an all-time low on Monday, having sliced as much as 18% off its value, fueling a selloff in broader markets.

Investors are keeping a close eye on developments in China as its economy struggles to regain momentum after nearly three years of rolling lockdowns and inadequate government stimulus. China's economy slid into deflation last month and its exports -- the main driver for the goods-producing, export-oriented economy -- plunged to the lowest level since February 2020.

After Beijing lifted all COVID restrictions at the end of last year, China's economy widely disappointed expectations for a strong post-COVID rebound. In contrast to the West, Chinese households experienced no government stimulus, resulting in poor consumer and business confidence as unemployment climbed to a record high for young people.

On Tuesday, investors will get an update on the state of China's economy with the release of industrial production and retail sales figures for July that are expected to weaken further from an already multi-month low.

News of Country Garden's trading suspension fueled a rally in that U.S. dollar that jumped above 103 to a 103.058 two-month high settlement, pressuring the front-month West Texas Intermediate contact.

WTI September contract on NYMEX declined to $82.51 bbl, down $0.68 on the session, and international crude benchmark Brent for October delivery retreated $0.60 bbl for a $86.21 bbl settlement. NYMEX RBOB September futures fell back $0.0587 to $2.9062 gallon, and front-month ULSD futures dropped back $0.0332 with a $3.0883 gallon settlement.

Monday's move lower in the oil complex follows seven consecutive weekly gains for both WTI and Brent futures that rallied to multi-month highs at the end of last week. The International Energy Agency said on Friday global oil demand has climbed to a new record-high 103 million bpd over the June-July period and could push even higher in August. On an annualized basis, worldwide oil consumption will grow at a neck-breaking pace of 2.2 million bpd before moderating to 1 million bpd in 2024. On the supply side, the Paris-based energy watchdog said global oil production plunged 910,000 bpd last month to 100.9 million bpd, led by sharp reductions by OPEC+. In July, oil supply from the OPEC+ alliance fell 1.2 million bpd to a near two-year low as a voluntary reduction from Saudi Arabia came into effect.

A similar forecast is echoed in OPEC's Monthly Oil Market Report released last week that expects the global oil market to see a 2 million bpd shortfall after Saudi Arabia and Russia slashed production and oil exports. Riyadh extended the production cut into August, and on Aug. 3, said it would maintain the lower output rate through September, and could further extend the cut or even deepen the reduction into the fourth quarter. Russian oil production is estimated to have fallen to 9.93 million bpd in the third quarter, down from 11.2 million bpd reported at the start of the year.

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

Liubov Georges