China is the second-largest consumer of crude oil globally, and as a result of its slowing industrial activity, oil prices fell due to a dismal demand outlook. The US dollar’s strength, which kept energy prices high despite the Federal Reserve’s hawkish stance, also helped the negative trade.
The US stockpile also suggests that demand would weaken and that when China’s industrial output activity decreased, pricing pressure would increase. According to early trade statistics, the closing price of the previous trading session’s worldwide benchmark Brent crude was $82.44 per barrel, a decrease of 0.22%.
The American benchmark West Texas Intermediate (WTI) traded at $77.81 per barrel at the same time, a 0.31% drop from the previous session that closed at $78.05 per barrel. US commercial crude oil inventories increased by 3.7 million barrels to 455.9 million barrels during the week ending June 7, according to the latest data by the Energy Information Administration.
The inventory build, an indicator of weakening demand, was relative to the market prediction of a fall of around 1.2 million barrels. Over the same period, gasoline inventories and strategic petroleum reserves also rose by approximately 2.6 million barrels and 300,000 barrels, respectively.
The Fed announced its monetary policy decisions and economic projections last week. The bank did not change the policy rate in line with expectations and kept it constant at 5.25–5.50%. US Fed Chairman Jerome Powell maintained the status quo on rate cuts and said the timing was not right to start easing monetary policy that has persisted for a while.
Although inflation in the US showed signs of slowing down, the Fed reduced its interest rate cut forecast for this year from three to one. This decision increased concerns that the bank would maintain its tight stance in the fight against inflation for longer than expected, fueling demand concerns.
A recent report revealed that China’s oil refining activities slipped to the lowest rate this year as some of the plants extended their maintenance due to weak margins, ING commodities strategists said in a note on Monday.
The latest data from the National Bureau of Statistics (NBS) shows that crude oil refinery output in China fell 1.8% year-on-year in May, primarily due to planned and unplanned maintenance outages and curtailed processing rates on account of higher crude oil prices and lower margins.
Chinese refiners processed 60.5 metric tons (around 14.25 million barrels per day) of crude oil last month, ING said in its note. Cumulatively, China’s crude oil processing has dropped by around 0.3% year on year to 301.8 metric tons of crude oil over the first five months of the current year, compared to around 8.7% of growth seen for the full year, 2023.
The EIA last week reaffirmed its expectation that US crude oil production will be a record 13.2 million barrels per day this year and 13.7 million barrels per day in 2025.
