Oil Sinks Below $90 As China Data Disappoints and Iran Diplomacy Excites Traders

Meanwhile, analysts think Russia's luck with alternative crude buyers may soon end: File Image/Pixabay

Iran's uncommonly diplomatic stance regarding a possible nuclear deal with the U.S. along with alarming economic figures from China contributed to oil on Monday settling below $90 per barrel.

West Texas Intermediate for September delivery settled down $2.68 at $89.41 per barrel, while Brent for October settlement fell 3.1 percent to 95.10 per barrel after China announced a surprise cut in key interest rates in response to oil demand coming in 10 percent lower last month year-on-year.

Geordie Wilkes, head of research at Sucden Financial, said, "We're really seeing where China's economy is at and it's a lot less rosy than people had hoped, consumption is going to be lower than anticipated, certainly for oil."

For its part, ING cut its forecast for China's 2022 GDP growth to 4 percent, down from a previous forecast of 4.4 percent, and said a further downgrade was possible.

Crude traders were also galvanized by media reporting that an Iran/U.S. nuclear deal could be reached in days, based on remarks from Iranian foreign minister Hossein Amirabdollahian, who said in a briefing that the country would inform the European Union Monday evening of its position regarding a final draft text for a finalized deal.
 
A spokesperson for the Iranian foreign ministry added that there could be a basis for a signed agreement "in the very near future."

In other oil related news on Monday, the flip-flopping analytical view of the effectiveness of the sanctions against Russia flipped in favour of the sanctions: Viktor Katona, head of sour-crude analysis at Kpler, said, "Russian oil companies have been enjoying the beauties of the summer season: soaring domestic demand and the absence of EU sanctions have allowed them to ramp up production, [but] as we look into the immediate future, that is bound to change."

He added that volumes may fall to about 10.5 million per day (bpd) when the European Union ban on Russian exports begins in December; and while Moscow has been relying on customers in Asia to buy heavily discounted crude, Kpler, Rystad Energy, and Moscow-based BCS Global Markets all agree that the region is already saturated with Russian crude and can't be counted on to accommodate more when the bans kick in.

According  to vessel-tracking data monitored by Bloomberg, Russia may already be feeling the pinch: its average flow of crude to Asia fell below 1.75 million bpd over a four week period to Aug. 12, down from more than 2.1 million bpd in April and May.

Shipments to European buyers were also lower at 1.32 million bpd, down from more than 1.85 million before the invasion.