Oil futures: Brent slumps below $100/b as sluggish China factory data weighs  

1 Aug 2022

Quantum Commodity Intelligence - Crude oil futures Monday were sharply lower after latest data revealed China's recovery remains fragile in the post-pandemic world, while earlier support from perceived tight supplies evaporated during European afternoon trading hours.

Front-month October ICE Brent futures were trading at $99.87/barrel (1900 GMT) having at one point dipped to a low of $99.09/b, compared to Friday's settle of $103.97/b.

At the same time September NYMEX WTI was trading $93.84/b, versus Friday's settle of $98.62/b.

Brent continued to trade at healthy premiums over WTI, amid growing US production and continued shortfalls in North Sea output, including a record low volume scheduled for Brent/Ninian in September.

China's factory activity unexpectedly retreated in July, despite recent increasing signs of moderate recovery in the world's No 2 economy, according to data released by the National Bureau of Statistics (NBS) on Sunday.

The official manufacturing purchasing managers' index (PMI) slid from 50.2 in June to 49 this month, under the 50-mark that indicates a contraction in activity.

Ed Morse, global head of commodities research at Citigroup, said that a lack of demand growth and the strong US dollar are behind firm's continued bearish call for crude: "Our base case is for oil to continue to drift downward, seeing Brent in the mid $80s and WTI in the low $80s for year end," Morse told Bloomberg TV on Monday. 

Reports that Libyan crude oil output had rebounded to a pre-force majeure level of 1.2 million bpd also dragged on sentiment Monday. 

Additionally, volume of bullish bets held by money managers in the key US crude contract has fallen to its lowest level since the pandemic began, indicating the price rally that has seen the WTI contract is running out of steam.

According to CFTC data published Friday, funds liquidated almost 10 million barrels of long positions in the week to July 26, leaving bullish bets at just 243,710 million barrels, the lowest level since April 2020.

However, many see global demand overall remains healthy, while supply-side concerns have dominated talks heading into this week's OPEC+ meeting.

Members of the producer alliance meet on Wednesday to discuss policy beyond September and despite lobbying to pump more oil, any increase is expected to be modest at best.

OPEC delegates have already signalled via various media channels that another significant increase is unlikely after the broader group announced hikes of 648,000 bpd for both July and August, at least on paper. However, in June, the group was already 2.8 million bpd under target.

"Prices began to rise... due to the prevailing perception in the markets that there is a shortage of spare production capacity, which has become confined to a few and limited countries," said new OPEC secretary general Haitham al-Ghais.

Bosses of major energy firms were generally in agreement last week there are no signs of a significant demand slowdown, following investor calls after a slew of bumper Q2 profits were revealed.

ExxonMobil's CEO Darren Woods said the largest US oil company is not seeing any signs of demand destruction but added that it is a "complex picture".

Meanwhile, the Baker Hughes' latest weekly survey showed active drilling rigs in the US increased by 9 to 767, up 57% on year-ago levels. Drilling rigs specifically for crude oil were up six at at 607.