Price Performance Indicators

• ICDX’s crude oil price decreased 1,35 percent in a week (14/8 - 18/8).  
• Weakening Chinese economic data.

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Market Review

ICDX’s oil contract price closed lower at $81.39 a barrel for the week ended Aug. 18, as concerns over an economic slowdown in major oil importer China weighed on prices.

On the Chinese side, sentiment of concern over China's economic slowdown still overshadowed market movements this week, where China released the Consumer Price Index (CPI) YoY, down 0.3% in July from 0% previously. The release of China's inflation data raised concerns about the pace of post-pandemic recovery which in turn put pressure on prices because China is the world's main oil consumer. Beside that, China released July Retail Sales which decreased by 2.5% YoY versus 4.8% expected and 3.1% earlier, while the country's Industrial Production stood at 3.7% YoY versus 4.0%. 5% expected and 4.4% previously. Meanwhile, Fixed Asset Investment increased 3.4% YoY for the Current Year in July compared to market expectations of 3.8%. China's industrial output and retail sales data showed the economy slowed further last month, stoking fears of a deeper and longer-lasting growth slowdown.

While positive sentiment this week came from, the American Petroleum Institute released US crude oil stockpiles fell by around 6.2 million barrels last week compared to market estimates of 2.3 million and the previous 4 million barrels amid supply cuts by Saudi Arabia and Russia, part of the OPEC+ group comprising the Organization of the Petroleum Exporting Countries (OPEC) and their allies could erode oil inventories for the rest of the year. In addition, China was reported to have drawn on about 510 thousand bpd of oil inventories in July as imports weakened and refinery processing remained high to meet growing domestic demand and a surge in exports of refined fuels, marking the first time in 33 months that China has leveraged its strategic stockpiles.

Market View

Interest Rate Cut by the Central Bank of China

China's Central Bank has cut interest rates moderately amid increased risks to the yuan. China announced an unexpected move by slashing the one-year lending rate by 10 basis points to 3.45%, but keeping the five-year rate unchanged at 4.20% so far this year and becoming one of Asia's worst performing currencies. In addition, there are wider concerns about the currency's rapidly weakening yuan. Based on observations, the yuan has lost nearly 6% against the US dollar so far this year and is one of the worst performing Asian currencies. The Central Bank's move at the same time triggered market disappointment that hoped for a more aggressive stimulus to restore the economy of the world's first largest oil importer.

Saudi Arabia's Production Reduction Extension Plan

Saudi Arabia has volunteered to reduce production by 1 million barrels per day (bpd) from July to September, and is expected to extend its voluntary 1 million barrel oil supply cuts into October. The forecast is in line with previous projections from the IEA which saw a potential oil shortfall of around 1.7 million bpd during the second half of this year. On the other hand, Russia plans to reduce exports in August by 500,000 bpd, which is part of a deal among members of the Organization of the Petroleum Exporting Countries and allies, a group known as OPEC+, to limit supply. Meanwhile, Iraqi and Turkish oil ministers have discussed the importance of resuming oil flows after completing pipeline maintenance, a development that could boost global supply. Previously, Turkey halted Iraqi exports of 450,000 barrels per day (bpd) about 0.5% of global supplies via the Iraq-Turkey north pipeline in March following an arbitration ruling by the International Chamber of Commerce. Market participants saw the resumption of oil flows as adding nearly half a million barrels per day to global oil supplies already tight due to production cuts from Saudi Arabia.

WEEKLY ECONOMIC DATA & EVENTS CALENDAR

Source: ICDX Research