Oil prices fall, on track for 8% weekly decline on China demand woes

– Brent, WTI headed for biggest weekly drop since Sept. 2
– China’s economy grew at the slowest pace in Q3 since early 2023
– US crude output at record high, while oil stocks fall, EIA says
– Investors still pricing in 92% chance of Nov. Fed rate cut

Houston — Oil futures fell on Friday and were on track for a weekly drop of 8% after data showed China’s economic growth slowed and refinery output shrank for the sixth consecutive month.

Brent crude futures fell $1.69, or 2.27%, to $72.74 a barrel by 11:09 a.m. EDT, while U.S. West Texas Intermediate crude was at $68.95 a barrel, down $1.72 or 2.43%.

Both benchmarks are on track to fall by around 8% this week, their biggest weekly decline since Sept. 2, when OPEC and the International Energy Agency cut their forecasts for global oil demand in 2024 and 2025.

In China, the world’s top oil importer, the economy grew at the slowest pace since early 2023 in the third quarter, though consumption and industrial output figures for September beat forecasts.

China’s refinery output declined for the sixth straight month as thin refining margins and weak fuel consumption curbed processing.

“We cannot ignore the impact of electric vehicles in China,” said Neil Atkinson, Paris-based independent energy analyst and former head of the oil division at the IEA.

“There are various factors at play here, economic weakness in China but also the move towards the electrification of transport,” Atkinson added.

Electric vehicle sales in China jumped 42% in August and reached a record high of over one million vehicles.

Meanwhile, China’s central bank rolled out two funding schemes that will initially pump 800 billion yuan ($112.38 billion) into the stock market through newly-created monetary policy tools.

“Chinese data shows tentative signs of improvement, but recent briefings on additional economic stimulus left market participants underwhelmed,” said Rishi Rajanala, associate at Aegis hedging.
In the U.S., crude production smashed another record last week, according to the Energy Information Administration on Thursday, as output rose by 100,000 barrels per day (bpd) in the week to Oct. 11 to 13.5 million bpd, up from its previous peak of 13.4 million bpd first hit two months ago.

Helping to give prices a floor, the EIA data also showed that U.S. crude oil, gasoline and distillate inventories fell last week. And U.S. retail sales increased slightly more than expected in September, with investors still pricing in a 92% chance of a Federal Reserve rate cut in November.

“Positive U.S. economic data has helped alleviate some growth concerns, but market participants continue to monitor potential demand recovery in China following recent stimulus measures,” said Hani Abuagla, senior market analyst at XTB MENA.

Markets remain concerned about possible future price spikes as war in the Middle East continues.
Investors continue to anxiously wait for Israel’s response on Iran, according to Alex Hodes, analyst at energy brokerage StoneX said in a note.

After the killing of Hamas leader Yahya Sinwar, Lebanon’s Hezbollah militant group said on Friday it was moving to a new and escalating phase as it battles Israeli troops.

“Although the U.S. would like to believe that the killing of the leader is an opportunity to resume serious and meaningful peace talks, it seems more like wishful thinking than a realistic alternative,” said Tamas Varga, an analyst with oil broker PVM.

*Georgina McCartney, Arunima Kumar, Florence Tan & Trixie Yap; Paul Carsten; editing: Elaine Hardcastle, Louise Heavens & Christina Fincher – Reuters