Oil Hovers Near 6-Mth Lows as China Woes, Saudi Supply Glut Weigh

© Reuters.

By Ambar Warrick

AiVIF.com-- Oil prices recovered some ground in Asian trade on Tuesday, but hovered around six-month lows on concerns over waning Chinese demand and a Saudi Arabian supply glut.

Brent oil futures rose 0.6% by 20:19 ET (00:19 GMT) to $93.97 a barrel, while crude oil WTI futures sank 1.1% to $88.39 a barrel. Both contracts plummeted between 3.5% to 5% on Monday, touching their lowest levels since early-Feb. 

Weaker-than-expected Chinese industrial production data was the main trigger behind oil’s recent losses, given that it points to sluggish demand in the world’s largest crude importer. 

The reading on Monday is a result of a series of COVID-19 lockdowns in the country, which had ground economic activity to a halt earlier this year.

China’s central bank also cut lending rates on Monday, as it looks to shore up growth in the face of more COVID lockdowns. The country had last week imposed a lockdown in commodities hub Yiwu and surrounding areas.

On the supply front, Saudi Aramco- the world’s largest crude producer- said it could potentially increase output, despite a decline in demand this year.

Aramco (TADAWUL:2222) said it stood ready to increase output up to 12 million barrels per day, despite the Organization of Petroleum Exporting Countries (OPEC), which Saudi Arabia heads, signaling earlier this month that no supply hikes were planned. 

OPEC had also lowered its outlook on oil demand for the year.

Focus was also on negotiations between Western powers and Iran over reviving a 2015 nuclear deal, which could relax certain sanctions on Iranian oil and further increase crude supply.

The country is set to respond to the European Union’s “final” draft of the deal later today.

Oil prices saw massive swings this year, initially hitting over a decade’s high on supply shocks from the Russia-Ukraine conflict. But forecasts of slowing economic growth across the globe have since erased those gains.

But a potential energy crunch in Europe and a pickup in industrial activity in the second half of the year could help underpin crude.