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Chinese Premier disappoint investors

After increasing for three consecutive days, oil futures fell on Monday, the 16th of July 2012. The main reason for this sudden mood shift in the market was due to the Chinese Premier, Wen Jiabo, stating that the expected economic recovery of China for the second half of this year was yet to gain momentum. Brent crude futures fell by 0.20 percent to be at USD $102.20 per barrel, while WTI futures declined by 0.62 percent to fall to USD $ 86.56 per barrel.

The Chinese Premier’s remarks dampened much of the idea that had been prevalent in the market during the past week, which was that a lower than expected economic growth rate for China in the second quarter of this year hinted towards a greater economic stimulus in the Chinese economy. This increased stimulus would require an increase in the demand of oil from China, which is the world’s second largest oil consumer after the United States. However, now, the general feeling in the market is that the future demand for oil from China might not be as much as was expected, hence leading to a fall in the price of oil futures.

Oil futures also fell because Abu Dhabi was able to start exporting oil via the port of Fujairah, while bypassing the Strait of Hormuz. Iran has repeatedly warned that it would close down the Strait of Hormuz in retaliation to the sanctions imposed on it earlier this year.  These threats from Iran had resulted in fears about possible future supply bottlenecks, leading to an increase in the price of oil futures. However, with Abu Dhabi starting to export oil while completely bypassing the Strait of Hormuz, much of these supply fears have been addressed, and thus, the price of oil futures has fallen.

 

Author: Usman