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Futures Movers: Oil settles with a 3% loss as China growth worries dominate

Oil futures settled with a loss of around 3% on Monday as weak economic data from China raised fears that a slowing global economy will reduce demand for energy products.

Prospects for the revival of the Iran nuclear deal, which could lead to more global crude supplies, also contributed to losses for oil.

Price action

West Texas Intermediate crude for September
CL.1,
-3.06%

CL00,
-3.06%

CLU22,
-3.06%

delivery fell $2.68, or 2.9%, to settle at $89.41 a barrel on the New York Mercantile Exchange. Prices for the front-month contract, which tallied a 3.5% climb last week, settled at their lowest since Aug. 5, according to Dow Jones Market Data.

October Brent crude 
BRN00,
-0.16%

BRNV22,
-0.16%
,
 the global benchmark, dropped $3.05, or 3.1%, to $95.10 a barrel on ICE Futures Europe. Brent futures, which rose 3.4% last week, also settled a their lowest since Aug. 5.

Back on Nymex, September gasoline
RBU22,
-3.17%

 tumbled 3.1% to $2.9517 a gallon, while September heating oil 
HOU22,
-1.47%

fell 2.2% to $3.4403 a gallon.

September natural gas 
NGU22,
-0.75%

lost 0.5% to $8.728 per million British thermal units.

Market drivers

A batch of data out of China at the start of the week suggested fading growth in the world’s second-biggest economy. Industrial production and retail sales came in lower than the previous month and shy of analysts’ forecasts.

“Chinese economic data revealed the ongoing impact of COVID-19 lockdowns and an escalating property crisis…In response, China’s central bank unexpectedly cut key lending rates overnight in an effort to stimulate activity, which removed some of the pain resulting from the releases,” Richard Hunter head of markets at Interactive Investor, told clients in a note.

China’s industrial production rose 3.8% in July from a year earlier, but that fell short of the 4.5% growth expected by economists polled by The Wall Street Journal, according to a Dow Jones Newswires report. Retail sales grew 2.7% from a year earlier in July, lower than the 5% increase expected by surveyed economists.

U.S. economic data released Monday was also downbeat. The New York Fed’s Empire State business conditions index, a gauge of manufacturing activity in the state, plummeted 42.4 points to negative 31.3 in August, the regional Fed bank said Monday. That was among the lowest levels in the survey’s history.

The data out of China didn’t bring any good news for oil, and coming into the European session from the Asian session, “oil prices were already under punishment,” said Naeem Aslam, chief market analyst at AvaTrade, in a market update. “The picture became, even uglier when the U.S. Empire State manufacturing data came out, which literally fell off the cliff.”

Traders are selling oil because “they believe that oil demand is going to shift significantly as economic data indicates that the U.S. economy, the biggest economy in the world, and China have both applied brakes,” said Aslam.

Also driving oil prices lower Monday are expectations around the Iranian nuclear deal.

Read more on the Iran nuclear deal: What’s at stake for oil prices as Tehran prepares response to EU proposal

“Traders believe that this deal is going to happen, and Iranian oil will come to the market as the U.S. and its allies have little to no choice because oil demand will increase as we are coming towards the end of summer,” said Aslam.

“With Russian sanctions in place on Russian oil, choices are limited. So the fear of extra supply coming to the market is hammering the prices,” he said.

The latest pullback sent U.S. crude futures to a low of $86.82, their lowest intraday level since February, before Russia’s invasion of Ukraine caused a spike in energy costs.

Meanwhile, there were further signs that inflationary pressures for U.S. households were continuing to ease as natural gas and gasoline futures tracked oil prices lower.

U.S. motorists have seen weeks of declining gasoline prices, with the average price for regular-grade gas last week falling below $4 a gallon for the first time in months.

Hear from top Wall Street energy analysts at the Best New Ideas in Money Festival on Sept. 21 and Sept. 22 in New York. RBC’s Helima Croft will be there.

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