The Strategist

Will China become a problem for the oil market?

08/11/2017 - 12:38

The oil market reached local highs and almost immediately nosedived, losing more than 2%. What happened, and what is now preventing oil prices from rising?

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On Thursday, during trading, the barrel of the North Sea blend Brent exceeded $ 53.5. However, once the American session opened, the situation changed dramatically. The quotations went down.

In fact, large-scale sales were observed not only in the oil sector: the S & P 500 index of the broad market lost almost 1.5%, that is, the general mood on the market has changed dramatically.

At that, the news background was not particularly inviting for buying oil. In July, OPEC has increased its production to the maximum since the beginning of the year, and reserves in the United States are still at very high levels.

But there is one more negative point - Chinese demand. The import of crude oil into the Middle Kingdom in July fell to a minimum over the past seven months.

According to Reuters, the country imported 34.66 million tons of oil, or 8.16 million barrels per day, in July. However, in annual terms, oil imports increased by 13.6% to 247 million tons for the first seven months of the year. 

Nevertheless, analysts insist that the Chinese economy is now showing signs of slowing, as both exports and imports grew weaker than expected. Perhaps this is can be explained by seasonal factors, but it is necessary to wait for confirmation.

Saudi Arabia and Iraq are ready to cut production

The oil ministers of Saudi Arabia and Iraq held joint talks in the city of Jeddah, the administrative center of the Mecca province. Representatives of the two countries, the largest oil producers in OPEC, agreed to enhance cooperation to reduce production.

Their common goal is to balance the world's commodity markets, Saudi Energy Minister Khalid al-Falih said after talks with Iraqi counterpart Jabbar al-Luaibi. This is reported by SPA, the state news agency of Saudi Arabia.

The ministers also assured each other that they are ready to coordinate the oil policy in their states.

According to the OPEC report published in July, Iraq fulfilled the agreement by less than 50%, reducing production by October by only 93,000 barrels out of 210 thousand barrels recorded in its quota. At the same time, the country accelerated the rate of decline in production in the last month, the document says.

A few days ago, following the results of the technical meeting of OPEC + held in Abu Dhabi, Iraq, the United Arab Emirates, Kazakhstan and Malaysia promised to fully fulfill all their obligations to reduce oil production in the coming months.