Oil Futures Plummet After China Data Shows Demand Weakness

Bloomberg estimates that truck flows in China, a proxy for economic output, were also significantly lower in July than at the same time last year, and home sales last month plunged from a year earlier. In response to the data, China’s central bank unexpectedly cut a key policy interest rate for the first time since January, lowering the rate on its one-year policy loans by 10 basis points to 2.75% on Monday. At the same time, it also withdrew liquidity from the banking system by only partially rolling over the 600 billion yuan of loans maturing this week.

Partially spurred by the volatility in Asia’s markets, the U.S. dollar regained upward momentum in early index trade Monday, gaining 0.58% against a basket of foreign currencies, while further weighing on the oil complex.

Near 7:40 a.m. EDT, nearby-month delivery West Texas Intermediate fell £4.49 to £87.62 bbl, and the ICE Brent contract for October delivery dropped £4.81 to £93.31 bbl. NYMEX September RBOB plunged 12.89 cents to £2.9171 gallon, while the NYMEX September ULSD contract plummeted 13.61 cents to £3.3817 gallon.

Further weighing on the oil complex is the restart of Russian oil flows on the key European pipeline, Druzhba, that delivers gas to three landlocked countries in the European Union — Slovakia, Hungary, and Check Republic.

Last week, Russian state pipeline operator Transneft halted shipments through the southern branch of the Druzhba pipeline, citing EU sanctions and issues with processing payment.

Slovakia, Hungary, and Czech Republic receive practically all their oil imports through the Druzhba pipeline.

EU leaders agreed in May to embargo most Russian oil imports shipped by sea but allowed for Druzhba flows to landlocked countries in Central Europe.

Earlier this month, Russian state-owned energy giant Gazprom limited natural gas flow through the Nord Stream pipeline to just 20% of capacity, also citing issues with sanctions, delivering only 33 million cubic meters a day.

Protracted disruption to European energy supplies have already pushed several large EU economies to the brink of recession, with Germany reporting no growth in nominal gross domestic product for the second quarter.

The economic slowdown is likely to intensify as winter approaches and energy prices rise further in Europe, with several countries on the continent vulnerable to Russia completely cutting off gas flow.

Liubov Georges can be reached at [email protected]