Oil prices are dropping today, amidst the rebound of the Chinese economy

Autor: Financial Market
2 min

Crude oil prices trimmed the gains they achieved yesterday, after reaching new record levels this year and representing more high levels that we have not seen since mid-November of last year.

Spot Brent crude fell to the level of $93.80 per barrel at approximately 3:30 pm GMT, after reaching the level of $94.58 at the peak of the rises extending since yesterday, at 4:00 am GMT.

We also witnessed the return of declines in West Texas Intermediate (WTI) crude oil to the level of 90.30 this afternoon after reaching the level of $91.11 at dawn today. While both crude oil prices are heading towards recording a third consecutive week of gains.

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The evolution came after a series of positive data from the Chinese economy. Among the most prominent data, we witnessed a remarkable, higher-than-expected growth in industrial production by 4.5% last August on an annual basis, which is the highest since last April.

Also noticeably, we witnessed a higher-than-expected growth in retail sales during the same period and on an annual basis by 4.6%, which is the highest since last May, in addition to a slight decrease in unemployment rates to 5.2% in August, down from 5.3% last July.

These encouraging data came after a previous series of negative ones that included negative signals for various aspects of the Chinese economy.

It also came with more government measures and plans to support the private sector, and this time with a cut in the cash reserve requirements for banks, which may provide more liquidity for banks to direct them towards lending in a way that enhances growth again.

We also saw the return of some positive sentiment to the markets after the European Central Bank spoke yesterday about interest rates reaching their peak to combat inflation, after raising them by 25 basis points.

Despite the positive sentiment in the oil markets, we saw a negative note from Commerzbank, which believes that oil prices may face further pressure if demand for gasoline in the United States continues to decline, after a higher-than-expected decline last week.

While we witnessed a rise in US oil, gasoline, and distillate inventories much more than expected during the past week, according to data provided by the Energy Information Administration.

The refill of inventories comes after a previous series of sharp declines in light of fears of expected supply restrictions, with the Organization of the Petroleum Exporting Countries (OPEC), led by the Kingdom of Saudi Arabia, continuing to adhere to reducing its oil production, which decided to continue reducing its production of oil by one million barrels per day until the end of this year in order to support the oil markets.

I believe, if we do not witness a further escalation of military actions in the Black Sea that might hinder the Russian oil supply, that the factors supporting the oil markets from the supply side have done what they can, while the focus must now shift to the demand side, which is related to the continued flow of more oil of the positive economic data from the Chinese economy and the continuation of government support plans, in addition to further recovery in the US economy, which continues to record higher-than-expected growth despite the harsh interest rate environment.