Traders Waver Yet Again On China, Oil Extends Losing Streak

Meanwhile, analysts disagree on the market's health moving forward: File Image/Pixabay

Oil trading on Monday picked up in the same vein where last Friday's trading left off, with investors who last week expressed renewed hope for a stronger economy in China now increasingly convinced  that a recovery won't happen.

As a result, Brent settled down 34 cents at $84.46 per barrel, while West Texas Intermediate settled down 53 cents to $80.72 per barrel.

The source of consternation appeared to be China's central bank trimming its one-year lending rate by 10 basis points and retaining its five-year rate, confounding analysts who had been expecting a 15 basis point cut.

John Kilduff, founding partner at Again Capital, said, "It seems that [China's recovery] is not going to happen, it's doubtful they're going to be buying: they bought a lot of crude for storage earlier in the year; they're sitting on a lot of crude."

And yet, analysts of a more optimistic bent view fundamentals as rock solid, including Warren Patterson, head of commodities research at ING: "We still see a tight oil balance for the remainder of the year, which suggests that prices still have some room to run higher."

Indeed, Bloomberg noted that "Refined products such as diesel — the workhorse fuel of the global economy — have started pricing in scarcity this winter, boosting their premium to the oil from which they are made: gasoline futures in New York have risen about 13 percent this year, outpacing crude."

But these circumstances won't necessarily translate into more vigorous trading, argued Rebecca Babin, a senior energy trader at CIBC Private Wealth: she explained, "The market tightness is pretty well priced at this point as evidenced through spreads; right now macro is back in the driver's seat, and rates and China are the drivers."

She added, "We will continue to test $80 to the downside in WTI until rates take a breather or we get more aggressive stimulus from China."

Still, it remains unclear how justified are traders' demand destruction fears, especially in the east in countries such as China; in fact, a new Statista report revealed that two countries were particularly heavy oil consumers in 2022: the U.S. and China, the former consuming 19 million barrels of oil per day and the latter 14 million bpd.

Statista also reported that between 2012 and 2022, U.S. oil usage only increased by about 9 percent while China and India emerged as growth leaders with 42 and 41 percent consumption growth respectively.