Oil reverses gains as China growth fears outweigh production cuts

Tokyo — Global oil prices fell more than $1 on Monday, backing off last week’s gains, as questions over China’s economy outweighed Opec+ output cuts and the seventh consecutive drop in the number of oil and gas rigs operating in the US.

Brent crude lost $1.15, or 1.5%, to trade at $75.46 a barrel by 3.50am GMT (5.50am), while US West Texas Intermediate (WTI) crude was down $1.09, or 1.5%, to $70.69.

Last week, Brent posted a gain of 2.4% and WTI rose 2.3%.

“China’s economic uncertainties may have caused the sell-off after a two-day rebound in oil markets before the People’s Bank of China’s [PBOC’s] decision on its loan prime rates [LPR] this week,” said Tina Teng, an analyst at CMC Markets.

A number of major banks have cut their 2023 GDP growth forecasts for China after May data last week showed the post-Covid-19 recovery in the world’s second-largest economy was faltering.

PBOC is widely expected to cut its benchmark loan prime interest rates on Tuesday, after a similar reduction in medium-term policy loans last week to shore up a shaky economic recovery.

Sources have said that China will roll out more stimulus support for its slowing economy this year, but concerns over debt and capital flight will keep the measures targeted at shoring up weak demand in the consumer and private sectors.

Still, China’s refinery throughput rose in May to its second-highest total on record, helping to boost last week’s gains, and US energy firms cut the number of working oil and natural gas rigs for a seventh consecutive week for the first time since July 2020.

The oil and gas rig count, an early indicator of future output, fell by eight to 687 in the week to June 16, the lowest since April 2022.

Oil prices on Monday are also lower on expectations that Opec and its allies including Russia, or Opec+, will struggle to get compliance with production quotas, said Edward Moya, senior analyst at Oanda.

“Rosneft is suggesting the cartel of oil producers focuses on exports and not production,” Moya said, referring to comments made by Igor Sechin, head of Russian energy major Rosneft.

Speaking at an economic forum on Saturday, Sechin said it will be appropriate for Opec+ to monitor oil export volumes as well as production quotas due to the different sizes of each country’s domestic markets.

Earlier this month, Opec+ had agreed on a new oil output deal. The group’s biggest producer, Saudi Arabia, also pledged to make a deep cut to its output in July.

Reuters