Trading Oil Price: China’s Weak Economic Data Impacts Demand

Oil prices faced further declines on Wednesday as worries over weakening demand from China, the world’s largest trading oil importer, overshadowed positive progress on the US debt ceiling bill. Brent crude futures for August delivery slipped 15 cents to $73.56 a barrel, while US West Texas Intermediate crude (WTI) fell 14 cents to $69.32 a barrel. Both benchmarks experienced more than a 4% drop on Tuesday, with Brent’s July contract and WTI on track for monthly declines of over 7% and 9%, respectively.

China’s manufacturing activity contracted more than anticipated in May, signaling weakening demand. The official manufacturing purchasing managers’ index (PMI) dropped to 48.8 from April’s 49.2, falling below the forecast of 49.4. This unexpected decline raised concerns about China’s commodity demand as industrial output and fixed-asset investment grew slower than expected. Analysts worry that China’s commodity demand may be weakening at a faster pace than initially anticipated.

US Debt Ceiling Bill Progress Fails to Offset China’s Economic Data

Despite positive developments regarding the US debt ceiling bill, trader sentiment remained cautious. The legislation, aiming to lift the $31.4 trillion US debt ceiling and include federal spending cuts, passed a crucial hurdle and advanced to the full House of Representatives for debate and an expected vote on Wednesday. However, the impact of China’s weak economic data outweighed the positive news, leading to continued losses in domestic oil prices. Traders maintained caution ahead of further news developments.

The upcoming OPEC+ meeting coincides closely with the debt deadline, adding to uncertainty in the market. Crude oil traders are unsure whether the group will increase output cuts, given the current slump in prices. Saudi Arabia’s Energy Minister, Abdulaziz bin Salman, warned short sellers betting on the falling price of domestic heating oil to “watch out,” hinting that OPEC+ may consider reducing output. However, Russian oil officials and sources suggest that Russia favors leaving output levels unchanged. The market remains uncertain about the outcome of the OPEC+ meeting.

Saudi Aramco’s Decision for Crude Grades to Asia: Near-Term Technical Analysis

Saudi Arabia’s heavy fuel oil giant, Saudi Aramco, is contemplating a reduction in the official selling prices for all crude grades to Asia in July. A Reuters poll indicates a potential $1 per barrel decrease, the lowest since November 2021. This move adds to the mixed signals surrounding output expectations in the market.

WTI crude trading oil prices are expected to face continued pressure in the near term due to concerns over reduced demand from China and the negative impact of weak economic data. Although positive developments on the US debt ceiling bill provide some optimism, the market is still influenced by China’s economic data, leading to further losses. The upcoming OPEC+ meeting and debt deadline introduce uncertainty, with traders uncertain about potential production cuts. Mixed signals from Saudi Arabia and Russia regarding output levels contribute to market confusion. Additionally, the potential reduction in Saudi Aramco’s official selling prices to Asia could further weigh on prices. Technical analysis suggests a bearish outlook, with the next support levels to watch.

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