Oil prices took a hit on Tuesday, weighed down by bleak economic data from China, while in the United States, investors are pondering the potential impact on American oil supply from a possible new presidency of Donald Trump.
The price of a barrel of Brent crude from the North Sea for September delivery fell by 1.31% to $83.73.
Its American counterpart, the barrel of West Texas Intermediate (WTI) for August delivery, dropped by 1.40% to $80.76.
China’s Economic Deceleration
“China’s slowdown is a significant factor in the market today,” stated Bill O’Grady of Confluence Investment, noting that a weakening growth in the world’s second-largest economy and the top crude importer could indicate a reduction in oil demand.
China’s economic growth slowed to 4.7% year-on-year in the second quarter from 5.3% in the first quarter, a pace far below analysts’ expectations and the slowest in two years.
Real Estate Sector Woes
Not only has the GDP growth decelerated, but the real estate sector continues “to be a drag,” with crude oil processing in June dropping to its lowest in six months and China producing more coal, highlighted analysts at Commerzbank Commodities Research.
Excess Production Capacity
Overall, the market continues to have “excess production capacity,” which regulates prices and “reduces volatility,” according to Bill O’Grady.
Even though OPEC+ has cut its production, helping to keep prices buoyant, American production has risen.
Market Challenges
“Oil prices are hovering around $85 as they have in recent weeks, but it’s challenging to maintain this level knowing that there’s all this available production capacity,” the analyst added.
“At the same time, prices aren’t falling too low because OPEC+ remains disciplined in its production cuts,” he summarized.
Future Industry Concerns
Other concerns are starting to interest the industry, particularly the potential direction of prices if Donald Trump is re-elected in November, following his survival of an assassination attempt and a triumphant Republican convention.
Trump’s Potential Policies
“If his program aims to lower oil prices by increasing national production, it’s very possible that oil companies may not want to ramp up production,” which could potentially reduce prices, concluded Bill O’Grady.