Oil Dips on China Pessimism As Analysts Differ On Upcoming Trading Trends

One expert thinks a return to $100 oil is entirely possible: File Image/Pixabay

A strong U.S. dollar combined with fading hopes over a full economic recovery in China caused  crude traders on Monday to put the brakes (albeit gently) on seven weeks of gains – however, some analysts suggested the drop was fleeting given the tight state of the oil market. 

West Texas Intermediate settled down 68 cents at $82.51 per barrel and Brent settled down 60 cents at $86.21 per barrel after credit data released over weekend showed a slump in demand from businesses and households, based on new bank loans plunging by 89 percent in July from June to 345.9 billion yuan ($47.64 billion).

This was less than half the 800 billion yuan expected by analysts.

Lu Ting, chief China economist at Nomura, said in a report with other analysts, "The weak July credit data suggest the downward spiral of the property sector continues, and worsening geopolitical tensions add to the uncertainty.

"In Japan during the 1990s, corporates might have paid down their debt to improve their chances of survival, but in today's China, corporates and households are cutting their borrowing due to a lack of confidence (and trust)."

This caused Walter Zimmerman, chief technical analyst with ICAP-TA, to remark, "The problem is as China increasingly proves unable of getting out of its own way to the upside, much less leading the world economy, there's not much else to lead things higher."

Phil Flynn, senior market analyst at Price Futures Group Inc., dismissed Monday's crude losses: "Part of it seems to be the Monday morning blahs: I think we still have to face a market that's very tight."

But other experts such as Vandana Hari, founder of oil market analysis provider Vanda Insights, read more meaning into trading activity: "Crude has been in overbought territory for some time now, defying expectations of a correction," she said, and added that too much focus of late has been on U.S. economic optimism at the expense of headwinds in the euro zone and China.

For his part, Bob McNally, president at Rapidan Energy, told media on Monday that the market remains bullish and oil hitting $100 per barrel is "entirely possible."

He justified his remark by stating, "There are good reasons to be sceptical, but fundamentals are fundamentals: OPEC+ is going to put a huge deficit into the market into the second half."

ING analysts were of like-minded opinion and stated, "Sentiment remains largely positive with the oil balance set to continue to tighten, while stronger refinery margins are also providing some support."