Oil declines on sentiment in Europe and cautious Chinese consumption

Meanwhile, potential risks such as reduced Russian flows through Ukraine or a surge in European gas demand could lead to a price increase

Tue, 16 Jul, 2024 - 16:13

Oil suffered its biggest intraday decline in three weeks as concerns about the Chinese economy and softer equity trading in Europe weighed.

West Texas Intermediate lost 1.9% to fall toward $80. European equity markets were trading lower, and the dollar edged higher for a second day of gains, with both acting as headwinds for crude.

The decline followed data that painted a weak picture for the world’s largest oil importer, as the nation’s economic growth slowed to its most sluggish pace in five quarters.

In another sign of short-term cooling, key timespreads have softened in recent days. Premiums of gasoline over crude fell to the lowest in almost a month.

Though still higher for the year, crude has largely swung between $75 and $95 as OPEC+ supply cuts vie with a cautious outlook for Chinese consumption.

That has pushed volatility to multiyear lows ahead of this week’s Third Plenum, which sets broad economic and political policies.

“Markets have felt the hand of the summer doldrums, and none more so than oil,” said Tamas Varga, an analyst at brokerage PVM Oil Associates.

Such listlessness has been made worse by the poor showing of data from China.

Meanwhile, European natural gas futures have stabilised around €31 to €32 per megawatt-hour, remaining near their lowest levels since mid-May, due to ample storage levels and decreased regional demand.

Storage facilities in Europe are at around 80% capacity as summer peaks and the rise in wind farm output has also helped reduce gas demand from power plants.

However, potential risks such as reduced Russian flows through Ukraine or a surge in European gas demand could lead to a price increase.

Freeport LNG said on Monday it plans to restart one of three liquefied natural gas trains this week at its Texas facility after the company repairs some damage from Hurricane Beryl.

The LNG exporter plans to restart the remaining two trains shortly after the first resumes operation, but production will be reduced while it continues repairs.

"The market maintains a cautious position because of the risk factors, in particular on LNG supply," analysts at Engie's EnergyScan said in a morning note.

Meanwhile, there are no LNG vessels expected in the UK for the coming weeks, consultancy Auxilione said in a daily note.

European gas storage facilities are currently 81% full, data from Gas Infrastructure Europe (GIE) showed.

Elsewhere, Russian natural gas exports via pipelines to the EU countries have jumped by 24% in the first half of the year from the same period in 2023, according to a July report by GECF.