Oil Continues Downward As China Concerns Continue Upward

Meanwhile, a huge U.S. inventory draw is dismissed as reactive: File Image/Pixabay

Oil trading on Wednesday assumed a patina of predictability in that China's economic strength - or lack of - continued to weigh heavily on sentiment, to the point where a robust drawdown of inventory in the U.S. was all but overlooked.

Brent settled down $1.44 to $83.45 per barrel, while West Texas Intermediate fell $1.61 to $79.38 per barrel, with continued uncertainty that China will be able to meet its growth target of about 5 percent for the year without more fiscal stimulus, and amid calls for authorities to provide more stimulus.

And yet, the U.S. drawdown was remarkable in terms of sheer volume: nearly 6 million barrels last week due to strong exports and despite crude production rising to its highest since the pandemic killed fuel consumption, according to the Energy Information Administration.

Tamas Varga, analyst at PVM, followed up reports of these figures by pointing out that the global oil balance shows no signs of loosening up.

But China is still viewed as the all-important keystone in oil market health moving forward, and Claudio Galimberti, research director at Rystad Energy, noted that the fourth quarter outlook will "depend on the macroeconomic situation in China primarily, albeit it looks like Saudi Arabia will continue to address that via their cuts, if needed."

For the record, a cabinet meeting chaired on Wednesday by premier Li Qiang concluded that the Chinese government would continue to introduce policies to boost consumption and promote investment.

Despite the gloom, it's worthwhile noting that refinery runs data from China suggest that demand for oil remains strong and growing, with refiners ramping up processing rates last month (resulting in the average daily number higher both than the average for June and July 2022).

But bearish sentiment spreads much easier than optimism in the oil world, and as such other analysts on Wednesday dismissed any notion that the latest U.S. drawdowns indicated strong demand: Jim Ritterbusch, president of Ritterbusch and Associates, said, "This week's draw simply offset last week's unexpected 6 million barrel build and looking ahead to next week, we can see a sharp decline in exports that will likely prompt a counter-seasonal crude stock build."