Oil extends losses as traders weigh China outlook, Iran supply concerns

Oil extended losses at the start of the week as traders weighed concerns about Chinese demand and the prospect for more Iranian supply.

West Texas Intermediate fell toward $91 a barrel after closing 2.4 percent lower on Friday. China’s central bank unexpectedly cut its key interest rates as it boosts support for an economy hit by virus lockdowns and property woes. The nation’s apparent oil demand last month was about 10 percent lower year-on-year.

The drawn out process of reviving a nuclear deal with Iran appears to be inching forward. A spokesman for the Iranian foreign ministry said that the basis exists for signing such an agreement “in the very near future,” adding that “considerable” progress had been made in the last round of talks.

Crude has ticked lower over the past couple of months on concerns about an economic slowdown, shedding all the gains put on following Russia’s invasion of Ukraine. Money managers have cut their bullish bets on WTI to the lowest in over two years, according to the Commodity Futures Trading Commission.

“Renewed Covid lockdowns in China are weighing on demand on top of recessionary worries, while supply concerns have melted away,” said Vandana Hari, founder of Singapore-based Vanda Insights. The prospect of Iranian supply returning adds to the bearish sentiment, she added.

China’s economic recovery unexpectedly weakened in July as fresh Covid-19 outbreaks impacted consumer and business spending. Industrial output rose 3.8 percent from a year ago, lower than June’s 3.9 percent and missing economists’ forecast of a 4.3 percent increase. Oil refining also fell as plants shut for maintenance.

Oil is still up around 20 percent this year and the surge in energy prices over the first half has underpinned record earnings for producers. Saudi Aramco posted the biggest quarterly adjusted profit of any listed company globally, following its big oil rivals such as Shell Plc and Exxon Mobil Corp.

The Middle Eastern oil giant “expects oil demand to continue to grow for the rest of the decade, despite downward economic pressures on short-term global forecasts,” Chief Executive Officer Amin Nasser said.

The outlook for the oil market remains mixed. The International Energy Agency last week raised its forecast for global demand growth this year, while Opec expects the market to tip into a surplus this quarter. The cartel trimmed its forecasts for the amount of crude it will need to pump.