Oil prices fall on weak demand, output boost signals

Oil prices dropped nearly five per cent on Monday on signals of continued weak demand from China and an announcement by the world's top exporter Saudi Aramco that it is ready to ramp up output.

The news that production at several offshore US Gulf of Mexico platforms is resuming after a brief outage last week has also boosted oil supply prospects amid Opec’s forecast that oil demand growth this year would be slower than previously expected.

Saudi Aramco said it stands ready to raise crude oil output to its maximum capacity of 12 million barrels per day (bpd) if requested to do so by the Saudi Arabian government. "We are confident of our ability to ramp up to 12 million bpd any time there is a need or a call from the government or from the ministry of energy to increase our production," Amin Nasser, chief executive officer of Saudi Aramco, said.

"It is going come gradually in 2024. I mean limited increase but in 2025, we should go to 12.3 million bpd and in 2026, we should go to 12.7 million bpd before reaching 13 million bpd by 2027," he said.

Saudi Arabia claims a current production capacity of around 12 million bpd but Platts Analytics estimates this at closer to 11.5 million bpd. The kingdom, alongside the UAE, holds virtually all of the world's remaining spare capacity.

Brent North Sea crude plunged 4.8 per cent to $93.46 per barrel while West Texas Intermediate dropped 4.5 per cent at$87.99 per barrel.

Vijay Valecha, chief investment officer, Century Financial, said recession fears are hovering over oil prices today, drifting them down, due to a lower-than-expected data from China in July, as industrial production settled at 3.8 per cent instead of expected 4.6 per cent. Moreover, refinery output decreased to 12.53 million bpd, the lowest since the start of Covid in 2020. China may have a stronger export; however, domestic demand remains weak.

"On the charts, crude Brent oil – Oct contract witnessed a significant drop today and support could hold at $95 or $93 while resistance could be seen at $98.4 and $99.8. WTI, setting a first support target at $90.4 and a second one at $88.9, otherwise, is expected resistance could be at $92.6 and further at $94," Valecha said.

Chinese data weighs

China’s central bank slashed key interest rates in a surprise move Monday as a raft of data showed weakness in the world’s second-largest economy.

The figures showed China’s industrial production and retail sales growth for July came in lower than expected.

Industrial production was up 3.8 per cent year-on-year, but down from 3.9 per cent in June and well below analysts’ forecasts.

— issacjohn@khaleejtimes.com