Oil slumps 5% as investors await OPEC+ meeting

Both international and U.S.-based crude oil benchmarks traded lower on Monday after clinching their second straight monthly loss in July as recession fears have weighed on commodity prices.

Price action

  • West Texas Intermediate crude for September delivery CL00, -5.05% CL.1, -5.04% CLU22, -5.05% was down $4.67, or 4.7%, at $93.95 a barrel on the New York Mercantile Exchange
  • October Brent crude BRN00, -3.94% BRNV22, -3.94%, the global benchmark, was off $3.70, or 3.6%, at $100.27a barrel on ICE Futures Europe.
  • Back on Nymex, September gasoline RBU22, -5.41% retreated by 4%, to $2.986 a gallon while September heating oil HOU22, -3.24% shed 2.2% to $3.472 per gallon.
  • September natural gas NGU22, -4.92% dropped 3.3% to $7.956 per million British thermal units.

Market drivers

Support near the previous low around $93 a barrel for WTI “is likely to be tested again this week as selling interest comes to the market. The oil complex is stalling on recession fears and news that Libya’s oil output increased,” said Brian Swan, senior commodity analyst at Schneider Electric, in a note.

“Another main culprit putting pressure on near-term pricing is the weak China manufacturing data weighing on demand,” he wrote.

Chinese manufacturing activity unexpectedly contracted in July, as Beijing’s COVID-19 restrictions and weak demand undercut hopes for a more robust economic revival. The official manufacturing purchasing managers index pulled back to 49.0 in July from 50.2 in June, China’s National Bureau of Statistics said Sunday. The result left the index below the 50 level that separates expansion from contraction and short of the median forecast of 50.3 among economists polled by The Wall Street Journal.

Oil traders were focused on the upcoming meeting of the Organization of Petroleum Exporting Countries and its allies — a group known as OPEC+. The meeting is set for Wednesday.

See: Why Goldman’s commodity guru Jeff Currie is bullish on oil despite July’s pullback

“With the previous agreement having expired as the group has theoretically unwound all of the pandemic production cuts, attention will now shift to how OPEC+ plans to actually hit those targets and whether any further increases will be announced going forward,” wrote Craig Erlam, a senior market strategist at OANDA, in a note on Monday.

Disappointing economic data out of China and other Asian economies also weighed on oil prices by undercutting hopes for a rebound. The Markit-Caixin purchasing managers index, a monthly indicator of business conditions in China’s manufacturing sector, came in weaker than expected late Sunday — coming in at 50.4, compared with the 51.5 consensus estimate according to FactSet data.

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