Oil falls as weak China factory data fans demand concerns

SINGAPORE, Aug 1 (Reuters) – Oil prices fell on Monday as weak output data from China and Japan for July weighed on the outlook for demand, as investors braced for this week’s meeting with officials from OPEC and other top producers on supply adjustments.

Brent crude futures were down $1[ads1].19, or 1.1%, at $102.78 a barrel at 0212 GMT. US West Texas Intermediate crude was at $97.19 a barrel, down $1.43, or 1.5%.

New covid-19 shutdowns halted a brief recovery in June for factory activity in China, the world’s largest crude oil importer. The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) fell to 50.4 in July from 51.7 the previous month, well below analysts’ expectations, data showed on Monday. read more

Japanese manufacturing activity rose at its slowest pace in 10 months in July, data showed on Monday. read more

“China’s disappointing manufacturing PMI is the primary factor that depressed oil prices today,” CMC Markets analyst Tina Teng said.

“The data shows a surprising contraction in economic activity, suggesting that the recovery of the world’s second largest economy from the covid shutdowns may not be as positive as previously expected, darkening the demand outlook for crude oil markets.”

Brent and WTI ended July with their second consecutive monthly losses for the first time since 2020, as soaring inflation and higher interest rates fuel fears of a recession that will eat away at fuel demand.

ANZ analysts said fuel sales to UK drivers slowed, while petrol demand remained below the five-year average for this time of year.

Reflecting this, analysts in a Reuters poll cut their forecast for 2022 average Brent prices to $105.75 a barrel for the first time since April. Their estimate for WTI fell to $101.28. read more

The Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, a group known as OPEC+, meet on Wednesday to decide output in September.

Two of eight OPEC+ sources in a Reuters poll said a modest increase for September would be discussed at the Aug. 3 meeting, while the rest said output was likely to be held steady. read more

The meeting comes after US President Joe Biden visited Saudi Arabia last month.

“While President Biden’s visit to Saudi Arabia did not result in any immediate oil deliveries, we believe the kingdom will reciprocate by continuing to gradually increase production,” RBC Capital analyst Helima Croft said in a note.

In early August, OPEC+ completely ended record production cuts in place since the COVID-19 pandemic took hold in 2020.

The group’s new secretary-general, Haitham al-Ghais, reiterated on Sunday that Russia’s membership in OPEC+ is crucial to the success of the deal, Kuwait’s Alrai newspaper reported. read more

Meanwhile, U.S. oil production continued to rise as the rig count rose by 11 in July, rising for a record 23rd straight month, data from Baker Hughes showed.

A break for Brent prices below the key support level of $102.68 could trigger a drop in the $99.52 to $101.26 range, Reuters technical analyst Wang Tao said.

Reporting by Florence Tan; Editing by Kenneth Maxwell and Bradley Perrett

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