Oil prices slid on Monday morning, with Brent falling below $86 per barrel and WTI trading at $82.31.
China’s economic woes combined with a strong U.S. dollar are weighing on oil prices.
OPEC+ production cuts have significantly tightened oil markets, but oil traders will be watching China’s economy closely.
Crude oil prices slid in midmorning Asian trade on Monday as China’s economic recovery continues to disappoint while the U.S. dollar strengthens.
Even with the slide, however, benchmarks remain much higher than they have been for months.
Brent crude was trading slightly below $86 per barrel at the time of writing and West Texas Intermediate was changing hands at over $82 per barrel, finding support at that level despite the bearish signals.
Support for oil prices also came from the International Energy Agency, which said in its latest monthly report it expected even higher prices this year. The agency also said, however, that it expected a sharp shrinkage in demand in 2024 due to what it called economic headwinds.
“The global economic outlook remains challenging in the face of soaring interest rates and tighter bank credit, squeezing businesses that are already having to cope with sluggish manufacturing and trade,” the IEA said in its report.
At the same time, however, the IEA acknowledged the tightening supply of oil thanks to OPEC+ cuts, which could cause global stock drawdowns of 2.2 million barrels daily in the second half of the year. This, in turn, could lead to higher prices still.
On the other hand, the oil market may be in for a correction, says Vandana Hari from Vanda Insights.
“Crude has been in overbought territory for some time now, defying expectations of a correction. It has been singularly focused on U.S. economic optimism, to the exclusion of the increasingly stronger headwinds blowing in the eurozone and China,” Hari told Reuters.
Bloomberg reports there’s more important news due out this week from China: on Tuesday, the country will release industrial production data, including numbers for the refining industry.
Meanwhile, in the U.S. expectations of a so-called soft landing are strengthening, serving to provide additional support to oil prices.
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