Oil prices make modest moves as China demand worries persist

U.S. oil prices edged higher on Tuesday and global benchmark crude moved lower, with the market unable to shake worries about China’s economic outlook and the implications for demand from the world’s second-largest crude consumer.

Price action

West Texas Intermediate crude for September delivery
CL.1,
+0.36%

CLU23,
+0.36%
inched up by 12 cents, or 0.2%, to $80.84 a barrel on the New York Mercantile Exchange ahead of the contract’s expiration at the end of the session. The soon-to-be front month, October WTI
CLV23,
+0.04%
traded at $80.19, up 5 cents, or nearly 0.1%.
October Brent crude
BRN00,
-0.04%

BRNV23,
-0.04%,
the global benchmark, was down 21 cents, or 0.3%, at $84.25 a barrel on ICE Futures Europe.
September gasoline
RBU23,
+0.56%
shed 0.3% to $2.7641 a gallon, while September heating oil
HOU23,
+0.65%
added 0.8% to $3.1424 a gallon.
September natural gas
NGU23,
-2.43%
traded at $2.605 per million British thermal units, down 1% after gaining 3.2% on Monday.

Market drivers

Oil futures have rallied this summer on expectations for the market to move into supply deficit in the second half, aided by Saudi Arabia’s 1 million barrel-a-day production cut, which took effect in July and is set to run through the of September. Russia has also throttled back exports.

But worries over China’s economy after a continued run of lackluster data have been amplified by problems in the country’s property sector, dimming the outlook for demand. Brent and WTI both fell more than 2% last week, ending a run of seven straight weekly gains.

“At a minimum, there could be a contagion risk in China,” but there are also concerns over whether it will spread globally, Stephen Innes, managing partner at SPI Asset Management, told MarketWatch.

“Continuously poor macroeconomic data from China is becoming a bearish headwind for the oil market, which has been focused on supply-side constraints from the OPEC+ coalition to continue supporting the market,” he said. Still, “despite doubts and wariness on the demand side of the market, OPEC still holds pricing power, and oil prices continue to be supported on dips.”

A sharp drop in the Russian ruble, meanwhile, could impinge Russia’s ability to continue scaling back crude exports, Peter Cardillo, chief market economist at Spartan Capital, said in a Tuesday note.

“The Russian situation, in our opinion, may force Russia to up its production causing a rift between OPEC+, leading to a breakdown of unity among OPEC+ producers,” he said.

The American Petroleum Institute, an industry trade group, is expected to report weekly inventory data after Tuesday’s close. Official figures from the Energy Information Administration are due Wednesday morning.

Analysts surveyed by S&P Global Commodity Insights, on average, expect crude inventories to show a drop of 4.24 million barrels last week as refinery runs increase and exports accelerate, while gasoline stocks are expected to fall by 1.15 million barrels. Distillate stocks were expected to show little change.

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