China No Longer Needs So Much Oil And Brent Pays For It Dearly

Oil futures fell more than 4% this Monday, thus extending the heavy losses of the past week. There are three reasons that are driving black gold to fall sharply: the recent strength of the US dollar, concerns about the new restrictions related to the coronavirus in Asia and the loss of momentum of the Chinese economy (lower growth will mean lower consumption of oil) could halt the global recovery in fuel demand.

Brent crude futures are down about $ 3, or 4%, to $ 67.9 a barrel after already falling 6% last week, marking their biggest weekly loss in four months. In addition to the slowdown in demand due to the new covid restrictions, it is added that OPEC and its allies are pumping more crude after the agreement reached in July. More supply together with less demand, white and in the bottle: a correction in crude oil prices to a new point of equilibrium.

West Texas Intermediate (WTI) crude futures , a benchmark barrel in the US, also corrected about 4% to 65.4 dollars after falling almost 7% last week, suffering the steepest weekly decline in nine months .

The possible return of Iran to the market, the energy transition, doubts about the strength of the economic recovery … last week and what we have of it, oil has suffered several scares , any excuse has been good to fall in the markets of futures.

The Delta and China variant
“Concerns about the possible erosion of world oil demand have resurfaced with the acceleration of the contagion rate of the Delta variant,” says analyst Gordon Ramsay in an RBC note collected by Reuters .

ING commodities analysts add in a note that China’s trade data shows crude oil imports have remained soft over the past month. China’s crude oil imports softened to 9.7 million barrels per day in July 2021 compared to around 9.8 million in June 2021 and much lower than the 12.1 million barrels imported in July. from last year.

Overall, crude oil imports have fallen 5.6% year-on-year during the first seven months of 2021. High oil prices, limited import quotas, especially for private refineries, and refinery maintenance have been affecting the demand for crude.

The strength of the dollar
On the other hand, the US dollar has hit four-month highs against the euro. This directly affects oil prices that are denominated in dollars. When the dollar rises against other currencies, each barrel is more expensive in relative terms for importing countries, which can affect demand.

If the dollar strengthens and the demand for crude oil shows some elasticity, crude prices should adjust until they find the new equilibrium point that allows countries with a different currency to consume more oil.

Thus, Brent oil is falling to lows not seen since May. Although the problems discussed above only affect crude oil in the short term, oil faces a much more enemy in the medium and long term: the energy transition that aims to electrify the world and make economies much more intensive in renewable energy .

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