Oil slumps 4% on concerns over demand and OPEC supply boost

Oil prices tumbled about 4% on Monday as weak economic data from China and the United States, the world’s top oil consumers, and higher crude output from OPEC producers stoked fears of weakness in oil demand and oversupply. Brent crude oil futures slid by $2.65, or 3.5%, to $72.76 a barrel. U.S. West Texas Intermediate (WTI) crude dropped fell $2.91, or 3.9%, to $71.04. “The complex is reacting pretty strongly from the more bearish economic data from China and the U.S.,” said John Kilduff, partner at Again Capital LLC in New York. China’s factory activity growth slipped sharply in July as demand contracted for the first time in more than a year, a survey showed on Monday.

The weaker results in the private survey, mostly covering export-oriented and small manufacturers, broadly aligned with those in an official survey released on Saturday. “China has been leading economic recovery in Asia and if the pullback deepens, concerns will grow that the global outlook will see a significant decline,” said Edward Moya, senior analyst at OANDA. U.S. manufacturing activity also showed signs of slowing. The pace of growth slowed for the second straight month as spending rotates back to services from goods and shortages of raw materials persist, according to data from the Institute for Supply Management (ISM). The ISM’s index of national factory activity fell to 59.5 last month, the lowest reading since January, from 60.6 in June.

Also weighing on prices, a Reuters survey found that oil output from the Organization of the Petroleum Exporting Countries (OPEC) rose in July to its highest since April 2020. The United States will not lock down again to curb COVID-19, but “things are going to get worse” as the Delta variant fuels a surge in cases, mostly among the unvaccinated, President Joe Biden’s chief medical adviser Anthony Fauci said on Sunday. The United States and Britain on Sunday said they believed that Iran carried out Thursday’s attack on an Israeli-managed petroleum products tanker, which killed a Briton and a Romanian, and pledged to work with partners to respond.