Oil prices extended losses early on Wednesday as worries of slowing demand from top oil importer China after the release of weaker-than-expected economic data outweighed some positive progress on the U.S. debt ceiling bill.
Brent crude futures for August delivery fell 28 cents to $73.43 a barrel by 0250 GMT, while U.S. West Texas Intermediate crude (WTI) slipped 26 cents to $69.20 a barrel, with earlier gains reversed after China manufacturing data was released. Both benchmarks fell by more than 4% on Tuesday.
Brent’s July contract, which expires on Wednesday, and the U.S. benchmark were on track for monthly declines of more than 7% and 9%, respectively.
China’s manufacturing activity contracted faster than expected in May on weakening demand, with the official manufacturing purchasing managers’ index (PMI) down to 48.8 from 49.2 in April. The outcome lagged a forecast of 49.4.
“With China’s industrial output and fixed-asset investment growing more slowly than expected last month, markets are worried that China’s commodity demand is weakening more quickly than anticipated,” said Vivek Dhar, director of commodities research at Commonwealth Bank of Australia.
“The current pessimism surrounding China’s commodity demand stands in contrast to the optimism at the beginning of this year,” he added.
In the U.S., trader sentiment was lifted slightly after legislation brokered by President Joe Biden and House Speaker Kevin McCarthy to lift the $31.4 trillion U.S. debt ceiling and achieve new federal spending cuts passed an important hurdle late on Tuesday, advancing to the full House of Representatives for debate and an expected vote on passage on Wednesday.
If passed, the Biden administration would not likely need to negotiate the debt ceiling again before the November 2024 presidential election, Dhar said.
The debt deadline nearly coincides with the June 4 meeting of OPEC+ – the Organization of the Petroleum Exporting Countries and allies including Russia. Traders were uncertain about whether the group would increase output cuts as a slump in prices weighs on the market.
Saudi Arabian Energy Minister Abdulaziz bin Salman last week warned short sellers betting oil prices would fall to “watch out” in a possible signal that OPEC+ may cut output.
However, comments from Russian oil officials and sources, including Deputy Prime Minister Alexander Novak, indicate the world’s third-largest oil producer is leaning toward leaving output unchanged.
Meantime, Saudi oil giant Saudi Aramco may further slash the official selling prices for all crude grades to Asia in July by $1 a barrel, the lowest since November 2021, a Reuters poll showed, adding mixed signals to the market on output expectations.
In April, Saudi Arabia and other members of OPEC+ announced further oil output cuts of around 1.2 million barrels per day (bpd), bringing the total volume of cuts by OPEC+ to 3.66 million bpd, according to Reuters calculations.
(Reporting by Stephanie Kelly and Trixie Yap; Editing by Himani Sarkar and Jamie Freed)