Oil prices slump ahead of US crude stocks data

Crude previously rose on news that China's economic growth is projected to reach the annual target of about 5%

China's economic growth is projected to reach its annual target. Bloomberg

Oil prices fell on Tuesday ahead of US crude stocks data, which will provide an indication of fuel demand during the summer driving season in the country.

Brent, the benchmark for two thirds of the world’s oil, was trading 0.98 per cent lower at $73.45 a barrel at 1.45pm UAE time, while West Texas Intermediate, the gauge that tracks US crude, was down 1.02 per cent at $68.66 a barrel.

Futures gained earlier in the day on supply worries and optimism over China’s economic recovery.

The American Petroleum Institute is expected to release its crude inventory data later today. This will be followed by official data from the US Energy Information Administration on Wednesday.

China's economic growth in the second quarter will be higher than the first and was projected to reach the annual growth target of about 5 per cent, China's Prime Minister Li Qiang told delegates at the World Economic Forum gathering in Tianjin on Tuesday.

“We are introducing more practical and effective measures to further tap the potential of domestic demand, invigorate the market, make urban-rural and regional development more co-ordinated, [and] accelerate the green transition,” Mr Li said.

China’s economy, which rebounded after Covid-19 restrictions were lifted at the start of the year, lost momentum in May, posting weaker retail sales and manufacturing output while registering a slowdown in the property sector.

The world’s second-largest economy recently cut two market-based benchmark lending rates, but the loosening of its monetary policy was less aggressive than what some analysts expected.

An armed insurrection in Russia that has now abated stoked concerns about crude supply.

Russian mercenary forces, the Wagner Group, withdrew from the southern Russian city of Rostov-on-Don on Saturday and halted their march on Moscow following a deal, ending what could have been the first coup attempt in the country for three decades.

Russian President Vladimir Putin on Monday said he had deliberately let the mutiny go on as long as it did to avoid bloodshed.

Brent and WTI shed more than 3.5 per cent last week amid concerns over further monetary tightening by global central banks.

“Oil is trading a little higher on Tuesday after rebounding off the lows in very choppy conditions in recent days,” said Craig Erlam, senior market analyst at Oanda.

“While there will of course be various contributing factors behind these moves, the fact remains that oil is trading within the same range it has for almost two months and what we're continuing to see is it fluctuate roughly between the upper and lower boundaries,” Mr Erlam said.

The International Energy Agency and Opec expect the oil market to tighten in the second half of the year amid Opec+ cuts and a rebound in Chinese crude demand.

However, resilient Russian crude supply and rising output in countries under sanctions, such as Iran and Venezuela, could potentially result in a smaller deficit in 2023, analysts have said.

Several investment banks, including Goldman Sachs, MUFG and UBS, have slashed their short-term oil price forecasts over the past few weeks, citing higher-than-expected crude supply in the market.

Brent is down by about 13 per cent since the beginning of the year as growing concerns about the global economy weigh on the outlook for crude demand.

“Brent has fallen just short of the previous lows now on four occasions in the last couple of months which may suggest we're seeing some consolidation but if we are, it's extremely gradual and could last many more months yet,” Mr Erlam said.

“Recent trading is merely a reflection of the immensely uncertain environment caused by extremely stubborn inflation pressures and the ever-changing expectations for interest rates,” he said.