Futures for the front month of the US benchmark for sweet light crude oil, West Texas Intermediary or WTI, fell $4.0 on Monday as Chinese economic data for July revealed an unexpected slowdown in economic activity, as the world's second-largest economy struggles to recover from stop-start lockdowns in H1 2022 and an ongoing decline in the country's real estate market.
weaker than anticipated The weakening of China's industrial sector, consumer spending, and job market last month spurred fears of a global economic downturn and a concomitant drop in global oil consumption. The data release revealed that Chinese refinery output fell to 12,53 million in July, the lowest level since March 2020. Technicians anticipate a test of $85 per barrel in the near future, as WTI reached its lowest levels since early February in the $87s per barrel range.
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Analysts mentioned Iran nuclear deal negotiations as another factor dampening optimism. The Iranian foreign minister stated that Iran will respond to an EU-proposed draft accord by the end of Monday's business day, before urging US negotiators to display flexibility. If the United States and Iran can reach an agreement that brings them back into compliance with the 2015 nuclear accord, this would pave the way for the removal of current US sanctions on Iranian oil exports, potentially releasing an additional 1 million barrels per day for export to global markets and alleviating supply concerns.
Other analysts noted a decline in open interest in crude oil markets as a factor that exacerbated volatility. A decline in open interest indicates that fewer crude oil futures traders are taking positions. According to Reuters, open interest in Brent futures has decreased by 20% this month compared to August 2021. Giovanni Staunovo, an oil analyst at UBS, opined that this could result in greater downside volumes.
Copper also falls due to skepticism on China's demand, while the strong dollar impacts gold.
Given China's prominence as the leading worldwide user of metals for construction, the aforementioned negative economic statistics from China and the strong appreciation of the US currency weighed severely on industrial metal prices. The Bloomberg Industrial Metals Subindex fell over 2.0% on Monday, as did spot copper prices on global markets to approximately $3.50 per ounce.
Earlier in the day, spot copper prices had fallen as low as $3.55, but a rally in US shares helped cushion the losses. Some also cited a surprise interest rate decrease by China's national bank, the PBoC, as providing assistance. Nevertheless, it was the worst day for copper in almost a month.
Despite global growth concerns, lower global bond yields, and easing from the central bank of the world's second-largest economy, the gold price likewise performed poorly. These are all elements that would generally be expected to support gold prices. The strong US dollar, which climbed across the board save versus its safe-haven G10 peer the yen, was the primary reason for gold's troubles, resulting in the precious metal plunging almost $20 on Monday to little over $1,780.
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