Oil falls on weak Chinese factory data on demand concerns

SINGAPORE (Reuters) – Oil prices fell on Monday, as weak manufacturing data from China and Japan for July weighed on the demand outlook, while investors braced for this week’s meeting of officials from OPEC and other major producers on supply adjustments.

Brent crude futures were down 82 cents, or 0.8%, at $103.15 a barrel at 0608 GMT. US West Texas Intermediate crude was at $97.44 a barrel, down $1.18, or 1.2%.

The new COVID-19 shutdowns wiped out a brief June recovery in factory activity in China, the world’s largest importer of crude oil. Data on Monday showed that the Caixin/Market manufacturing PMI fell to 50.4 in July from 51.7 the previous month, well below analysts’ expectations. Read more

Data on Monday showed Japanese manufacturing activity expanded at the weakest rate in 10 months in July. Read more

“Disappointing China manufacturing PMI is the main factor weighing on oil prices today,” said CMC Markets analyst Tina Teng.

“The data shows a sudden contraction in economic activities, indicating that the recovery of the second largest economy in the world from the impending shutdown may not be as positive as previously expected, which has clouded the outlook for demand in the crude oil markets.”

Brent and WTI ended July with their second straight monthly loss for the first time since 2020, as rising inflation and higher interest rates raised fears of a recession that could erode fuel demand.

ANZ analysts said fuel sales to drivers in Britain are declining, while demand for gasoline has remained below its five-year average for this time of year.

Reflecting this, analysts in a Reuters poll for the first time since April cut their forecast for average Brent prices in 2022 to $105.75 a barrel. Their estimate of WTI fell to $101.28. Read more

The Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, in a group known as OPEC+, will meet on Wednesday to decide on September production.

Two of the eight OPEC+ sources said in a Reuters survey that a modest increase for September would be discussed at the August 3 meeting, while others said production was likely to remain flat. Read more

The meeting comes after US President Joe Biden’s visit to Saudi Arabia last month.

“While President Biden’s visit to Saudi Arabia did not produce immediate oil results, we believe the kingdom will reciprocate by continuing to gradually increase production,” Helima Croft, an analyst at RBC Capital, said in a note.

The beginning of August sees OPEC+ completely abandon record production cuts since the outbreak of the COVID-19 pandemic in 2020.

Kuwaiti newspaper Al-Rai reported that the group’s new Secretary-General, Haitham Al-Ghais, affirmed on Sunday that Russia’s membership in OPEC+ is vital to the success of the agreement. Read more

Meanwhile, US oil production continued to rise as the rig count rose by 11 in July, an increase for the 23rd consecutive month, data from Baker Hughes showed.

Wang Tao, a Reuters technical analyst, said that a break in Brent crude prices below the key $102.68 support level could lead to a drop in the $99.52 to $101.26 range.

(Reporting by Florence Tan) Editing by Kenneth Maxwell and Bradley Perrett

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