U.S. oil settled nearly 2 percent on Monday on a slump in Chinese demand and worries that OPEC’s decision to pump without restraint could prolong the current supply glut, although a weaker dollar limited losses.
U.S. crude closed down 99 cents, or 1.67 percent, at $58.14 a barrel.Brent, meanwhile, fell 50 cents to $62.90 a barrel.
China, the top net oil importer in the world, bought about a quarter less crude oil in May than it did in April, official data showed on Monday. In the oil products category, imports fell by more than 6 percent, against a 10 percent drop in exports.
Traders said refineries in China used more crude from stockpiles last month, leading to lower imports. A higher number of processing plants for crude were also offline for maintenance, leading to the drag on demand, some said.
But others said the 26-percent month-on-month drop in crude imports, based on May’s arrival of 5.47 million barrels per day, was still an anomaly.
“A 4-6 percent drop is acceptable for refinery maintenance season in China, but 20 percent or more is a sign of demand collapse,” said Bob Yawger, director of energy futures at Mizuho Securities USA.
Phil Flynn, an analyst at Chicago-based Price Futures Group, said a continuous slump in Chinese demand could be a “game changer” for oil bulls determined to see Brent futures at above $65 a barrel and U.S. crude futures at above $60 a barrel.
“Everything is out of whack at this moment in terms of demand after what OPEC did last week, so figures like Chinese imports will be more important than ever for demand going forth,” Flynn said.
OPEC said on Friday it would maintain its output target of 30 million barrels per day. In actual terms, its members pump well above demand for its oil, exacerbating a glut filling crude storage tanks worldwide.
“The oil market still looks like it is heading for trouble,” Barclays commodities analysts said in a report, adding that the supply surplus would likely last through the year, although it could be smaller over the next six months.
Morgan Stanley said in a note that attention will be more on how quickly Iranian oil returned to the market with the expected lifting of a trade embargo if Tehran complied with a nuclear deal with the West.