Oil prices dip amid mixed economic signals

Oil prices experienced a decline on Monday following seven consecutive weeks of gains, attributed to a strong dollar and concerns over China’s economic growth impacting demand. Brent crude, the benchmark for a significant portion of global oil, dropped by 0.99 percent to $85.95 a barrel, while West Texas Intermediate, a measure of US crude, decreased by 1.02 percent to $82.34 per barrel at 9:29 a.m. UAE time.

In the previous session, Brent had closed 0.47 percent higher at $86.81 per barrel, while WTI saw a 0.45 percent increase, settling at $83.19.

The US Dollar Index, which gauges the dollar’s value against a weighted basket of major currencies, continued its ascent on Monday after a larger-than-expected rise in US producer prices for July. The Labour Department disclosed that the producer price index for final demand increased by 0.3 percent last month, indicating persistent inflation in the world’s largest economy. Economists surveyed by Reuters had anticipated a 0.2 percent gain.

A stronger dollar contributes to the increased cost of dollar-denominated oil for those holding other currencies. Edward Moya, Senior Market Analyst at Oanda, cautioned against assuming that the US Federal Reserve is done raising interest rates, citing the notable increase in producer prices. He suggested that this might maintain the possibility of a Fed rate hike in November.

China, the second-largest global economy and a significant crude importer, is poised to release data on national retail sales, foreign direct investment, and industrial output on Tuesday. While the International Energy Agency predicts that global oil demand will expand by 2.2 million barrels per day in 2023, with China driving over 70 percent of the growth, it anticipates a deceleration to 1 million barrels per day next year as the post-pandemic economic recovery loses momentum.

Meanwhile, global oil supply decreased by 910,000 barrels per day to 100.9 million barrels per day in July, primarily due to a significant reduction in Saudi Arabia’s output. Earlier this month, Saudi Arabia announced an extension of its voluntary oil production cut of one million barrels per day until September, a measure intended to bolster oil market stability and balance.

Russia, which pledged to lower its oil output by 500,000 barrels per day until the year-end, will reduce oil exports by 300,000 barrels per day in September.