Oil prices slipped on Friday as investors digested the latest downbeat economic news from China, whose immense demand for oil makes it a major factor in worldwide prices.
The Organization of the Petroleum Exporting Countries (OPEC) pointed to weakening Chinese demand when it made its projections for the rest of 2024 on Monday, and the International Energy Agency had a similar forecast for 2025.
These projects cut about two percent off oil prices by the end of trading on Friday, settling at under $80 a barrel. The price change was not large, but it continued a downward trend based on bad news from China, offset by rising anxiety over a potential Iran-Israel war that could disrupt Middle Eastern supplies.
Some analysts predicted oil prices would slip further as the threat of Iran attacking Israel seems to be receding, making lower demand a more dominant factor.
“Provided the situation in the Middle East does not escalate further, the oil price is likely to tread water,” Commerzbank Research said on Friday.
China’s latest gloomy economic news included July data released on Thursday that showed only sporadic flickers of positive growth despite heavy stimulus spending and new regulations.
On Thursday, the National Bureau of Statistics of China reported that property investments are down 10.2 percent year-on-year, new home sales are down 25 percent, and new bank loans hit a 15-year low.
China’s retail sales were up slightly but still far below pre-pandemic levels, and industrial production slowed. Spending and borrowing were stale even after big interest rate cuts designed to increase consumption. Some analysts saw the extended Chinese economic slump as the beginning of a stagnant period similar to Japan’s “lost decade” in the 1990s.
Even e-commerce titan Alibaba missed its first-quarter revenue expectations, in part because pressure from a new wave of discount retailers combined with weakening demand is forcing older firms like Alibaba to sell some products at a loss.
June was a massive retail sales period for China, as it included the traditional Dragon Boat Festival and a newer event known as the 618 Holiday, named after the June 18 founding date of another e-commerce giant, JD.com. June in China approaches the Christmas season in the United States in terms of its importance to the retail industry.
Sales were down for the first time in eight years during the June 2024 shopping season, making the normally exuberant shopping festival look more like a gigantic clearance sale. Desperate to put some good news together, some big retailers kicked off the 618 event in May and kept it running later than usual, but revenue totals were still disappointing. As some market watchers noted, June did not even lose this much steam during the height of the pandemic.
“The spending slump in China is real. Consumers are spending less, downgrading purchases and becoming more rational,” said M Science analyst Vinci Zhang, predicting the rest of 2024 would pass before Alibaba and its peers could hope to see any good revenue news.
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