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Oil prices drop 3% after plunging oil demand in China

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Oil prices fell around 3% this Monday, dropping for a third session, after data showed that oil demand in China, its refining throughput and its industrial activity slowed down; which was seen as an indicator that Covid-19 spread and its Delta variant is hitting the world’s second largest economy.

Firstly, Brent crude was down $2,21 or 3,1%, closing at $68,38 per barrel; while the U.S. crude, the West Texas Intermediate, dropped $2,42, or 3,5%, to a total of $66,02 per barrel.

Secondly, as Reuters reports, Chinese factory output as well as its retail sales growth slowed sharply in July, data showed; missing expectations as flooding and fresh outbreaks of COVID-19 disrupted business activity.

Thirdly, China’s crude oil processing last month also fell to the lowest level on a daily basis since May 2020; as independent refiners cut production in the face of tighter quotas, elevated inventories and falling profits.

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Current flows of oil wont be enough for the global market, hitting oil prices

Moreover, after such economic performance by the world’s largest oil importer and consumer, doubts about the economic recovery spread amongst the investors’ sentiment. Especially after the report by the International Energy Agency last week; saying that, due to Covid19 infections, demand for crude oil will decrease for the rest of 2021.

Consequently, money managers reduced their net-long U.S. crude futures and options holdings in the week to Aug. 10; the U.S. Commodity Futures Trading Commission (CFTC) said on Friday. Also, speculators dropped their futures and options positions in New York and London by 21,777 contracts to 283,601 over the period, the CFTC said.

On the other hand, about the financial performance of oil, Commerzbank said in a note. “Concerns about the spread of the Delta variant in China and the effects this will have on oil demand are continuing to weigh on prices.”

Finally, last week, the U.S. government called out OPEC to increase its oil production; the U.S. considers that the current flow of oil won’t be enough to meet the market’s needs; such would further weigh on prices.

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