As Oil Prices Slide But Demand Rises, Here's What To Watch For
Ellen R. Wald, Ph.D | Aug 05, 2021 04:02AM ET
Oil prices fell this week, largely based on concerns that:
- Chinese oil demand may drop
- US economic data is not encouraging
- Increasing oil production from OPEC+ will be a drag on prices
However, traders should keep in mind that demand is growing in other regions of the world, despite ongoing coronavirus concerns. Here’s what to watch for in the coming weeks:
h2 1. China/h2Data out of China (which isn’t always accurate) indicated that factory activity growth declined in July, which is the first time in over a year that the rate of growth of factory activity in that country has contracted. This prompted concerns that China, which has been leading Asian economic growth, could be showing signs of faltering.
If China’s economy slows down or even contracts, then oil demand could falter. Of additional concern are lockdowns due to coronavirus cases in China—46 cities are currently restricting the movement of citizens over coronavirus cases.
China is also released from ADP, the payroll company, revealed that although the private sector added 330,000 jobs in July, that is less than half the number of jobs added in June. The July jobs number is well below the 653,000 jobs economists expected to be added.
EIA data showed that U.S. crude oil stockpiles increased last week, though gasoline inventories fell. However, analysts suggested that the likely cause for the growth in crude oil stockpiles was due to a drop in exports, not a drop in domestic demand.
Traders should pay attention to export numbers over the coming weeks. If exports continue to trend lower, it could indicate waning global demand.
Market watchers should be production by 400,000 bpd and plans to increase output by that amount every month through April 2022.
This could cause a dislocation of supply if coronavirus restrictions return as some are expecting. However, market watchers should remember that OPEC+ is still meeting monthly and may still decide to decrease its production increases if the market shows weaknesses.
Aramco (SE:2222) rose by 646,000 bpd in July, even though, according to Johns Hopkins University, India coronavirus rates make it the “second most-infected country in the world.” India imports almost all of its crude oil needs.
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