Oil dips on possible easing of tight supply, China woes hurt demand outlook

SINGAPORE: Oil edged lower on Tuesday as the market waited to see if Iraqi oil exports resume, which could ease the supply tightness caused by the OPEC+ cut, while a faltering Chinese economy continued to undercut the global demand outlook.

Brent crude was down 8 cents at $84.38 a barrel and U.S. West Texas Intermediate crude was trading 7 cents lower at $80.65 a barrel at 0241 GMT. WTI’s contract with September expiry slipped 8 cents at $80.04 a barrel.

“Crude oil struggled to keep its head above water on signs of supply tightness easing,” said Brian Martin and Daniel Hynes, analysts from ANZ Bank in a note to clients.

Iraq’s oil minister Hayan Abdel-Ghani arrived in the Turkish capital Ankara to discuss several issues including the resumption of oil exports through the Ceyhan oil terminal, a source in the minister’s office told Reuters on Monday.

Turkey halted Iraq’s 450,000 barrels per day (bpd) of exports through the northern Iraq-Turkey pipeline on March 25 after an arbitration ruling by the International Chamber of Commerce (ICC).

More Iraqi crude oil coming on to the market could help alleviate the supply crunch for sour crude as the Organization of the Petroleum Exporting Countries and the allies (OPEC+) prolonged and deepened production cuts.

Meanwhile, gloom over the economic outlook in China, the world’s second biggest oil consumer, continued to pressure oil prices and heighten worries about fuel demand.

China’s central bank on Monday cut its one-year lending rate only moderately to the disappointment of the market which had expected more aggressive stimulus steps amid a rapid loss in economic momentum.

“China’s economic weakness is weighing on oil prices and will create a ceiling for them this year, especially as Beijing appears committed to avoiding large-scale fiscal stimulus,” Eurasia Group said in a note.

J.P.Morgan analysts estimated that global demand growth for mobility fuels decelerated to 0.6 mbd year-on-year for the reference week ending August 12.

Year-to-date, with China’s base effect now out of the numbers, growth in demand for mobility fuels slipped to 1.6 mbd compared to the same period last year, they said.

Putting a floor to oil prices, US crude oil and gasoline inventories were expected to have fallen last week, a preliminary Reuters poll showed, as the American Petroleum Institute industry group is due to release data later on Tuesday.

The Energy Information Administration, the statistical arm of the US Department of Energy, is due to release its own data on Wednesday.

The market is also focusing on preliminary US August PMI data and the Federal Reserve’s annual economic symposium at Jackson Hole both due later this week.

US economic data over recent weeks has bolstered expectations for the Fed to keep rates higher for longer, putting a dampener on the demand outlook for oil and a broad range of consumer goods.