Crude oil prices continued to retreat from the 3-month peak seen last week on a soft economic outlook for China and easing political tensions in Libya, potentially lifting production capacity.
The WTI front futures contract touched US$ 77.33 per barrel last Thursday before tumbling into the weekend and continuing lower to start this week, trading below US$ 74 per barrel.
The Brent futures contract saw similar price action, nudging US$ 81.75 before visiting US$ 78.25 per barrel on Monday.
China’s GDP figures on Monday revealed that the economy grew at 6.3% year-on-year in the second quarter against forecasts of 7.3%, and 4.5% in the previous quarter.
The data comes at a time when the world’s second-largest economy is facing headwinds to reignite its economy. There has been wide speculation that Beijing may take several more measures to stimulate activity, but the steps taken so far have been tentative.
If China’s economy continues to languish, it may undermine demand for energy. Two large oil fields in Libya that had halted production due to protests have reopened. It is being reported that the fields of Sharara and El Feel will add around 320,000 barrels per day (bpd) to global supply.
This addition may go some way to counter the 500,000 bpd production cuts recently announced by Russia.
Potentially lending some support to black gold is the RBOB crack spread that has ticked up again this week. The RBOB crack spread is the gauge of gasoline prices relative to crude oil prices and reflects the profit margin of refiners.
RBOB stands for reformulated blendstock for oxygenate blending. It is a tradable grade of gasoline. If profitability increases for refiners, it may lead to more demand for the crude product.
The price action saw WTI crude fall back into the broad range of US$ 66.80 – US$ 77.33 that it has been in for 11 weeks.
The OVX index measures volatility in the WTI oil price in a similar way that the VIX index gauges volatility on the S&P 500. The OVX continues to drift lower, perhaps reiterating the range trade-type environment that currently pervades and potentially might continue.
