Oil Plunges 3% Overnight For These Reasons

• Weak China, US data sends oil plunging 3% overnight
• Iranian nuclear talks see progress
• Prompt ICE Brent time spread shrinks to 3-month low

A recent news article published in the Platts states that crude oil futures extend losses as sentiment sours after weak China, US data.

Crude oil futures were lower

Crude oil futures were lower in mid-morning Asian trade Aug. 16, extending steep declines from the overnight session, after the release of data showing economic activity weakening in China and the US and as investors continued to eye progress on the Iranian nuclear talks.

At 10:10 am Singapore time (0210 GMT), the ICE October Brent futures contract was down 72 cents/b (0.76%) from the previous close at $94.38/b, while the NYMEX September light sweet crude contract was 49 cents/b (0.55%) lower at $88.92/b.

Sour oil market sentiment

Oil market sentiment rapidly turned sour after Chinese economic data released Aug. 15 showed July retail sales and industrial production in the world’s second largest economy growing far slower than expected.

This was followed closely by the release of US data showing factory activity in New York contracting sharply in August in a New York Federal Reserve survey of manufacturers.

Both crude oil benchmarks plunged by 3% in the wake of the reports.

“Commodities prices across the board were under pressure as China’s July economic data painted a more downbeat growth picture than previously expected, which prompted renewed concerns on demand outlook,” said IG market strategist Yeap Jun Rong in a Aug. 16 note.

Further pressure came from signs of progress on nuclear talks between Iran and Western powers Aug. 15.

The latest developments mark another turn in the roller coaster ride for oil prices in recent weeks. Varying headlines have sent oil prices racing up and down in outsized movements, though ultimately prices have remain trapped within a well-worn range since the start of the month.

With the recent declines, both crude oil markers have mostly shed all of their gains from the previous week ended Aug. 12, ending a short-lived upturn that saw ICE Brent briefly cross back above the $100/b level.

The prompt M1-M2 ICE Brent time spread was seen slipping to a fresh 3-month low of 73 cents/b at 0210 GMT. It last settled lower on April 28 at 33 cents/b.

Nonetheless, some analysts noted a measure of support coming from further potential disruptions to Russian oil supply. While Russian crude exports have proved to be more resilient than expected, impending European sanctions could choke off a portion of those flows.

Iranian oil will start to struggle

“The prospect of more Iranian oil will still struggle to offset further losses in Russian crude, with European sanctions on Russia kicking in fully by the end of the year,” said ANZ Research analysts Brian Martin and Daniel Hynes.

Dubai crude swaps and intermonth spreads were lower in mid-morning trade in Asia Aug. 16 from the previous close.

The October Dubai swap was pegged at $88.34/b at 10 am Singapore time (0200 GMT), down $1.64/b (1.82%) from the Aug. 15 Asian market close.

The September-October Dubai swap intermonth spread was pegged at $2.14/b at 10 am, down 24 cents/b over the same period, and the October-November intermonth spread was pegged at $1.10/b, down 20 cents/b.

The October Brent/Dubai EFS was pegged at $5.58/b, down 61 cents/b.