Oil prices drop by 40 cents as China’s imports slide

Oil prices fell yesterday, after China reported a drop in its oil imports and as the impact of the Organization of the Petroleum Exporting Countries’ decision to keep its production level unchanged trickled through.

Investors are also expected to turn their attention to the June 30 deadline for the Iran nuclear deal that could pave the way for the lifting of Western sanctions and more Iranian oil hitting the oil market.

July Brent crude on London’s ICE Futures exchange fell $0.30 to $63.02 a barrel. On the New York Mercantile Exchange, light, sweet crude futures for delivery in July traded at $58.73 a barrel, down $0.40.

Oil markets have struggled to sustain a price rally as bearish supply indicators such as Saudi Arabia’s record output have offset signs of a decline in U.S. shale oil production.

This bearishness was reinforced after OPEC decided on Friday for the second time in six months to take no action amid a global supply glut. On Monday, data showed that China’s May crude-oil imports fell 11 per cent on the year to 23.24 million tons.

Strong Chinese oil demand has been one of the few pillars of oil support so far this year and signs of softening demand will weigh on oil prices.

Meanwhile, worries over excess supply have been exacerbated by a potential nuclear deal between Iran and six world powers.

“Despite the efforts of various politicians in Washington, and various governments in the Middle East to derail this process, my very firm view is that we’re probably going to have the nuclear deal with Iran on or around the 30th of June,” Alastair Newton, a senior political analyst at Nomura International, told reporters in Singapore last week.

“I would put a 70 per cent probability on that,” he said, adding that Iranians desperately need the revenue and the nuclear deal is President Barack Obama’s flagship foreign-policy initiative.

Newton said the deal would probably allow Iran to sell an additional 0.5 million barrels a day of oil on global markets at some point in the fourth quarter.

“That’s going to mean that come Q4 [fourth quarter] we could see production running at a rate something like four per cent ahead of day-to-day demand for oil globally.”

Morgan Stanley’s Adam Longson also warned that some worrisome signs of stress are emerging in the physical oil market, particularly in the Atlantic Basin, and need to be watched.

He said there are reports of unsold oil cargoes in West Africa and the North Sea, the strength in the Middle East crude market could be temporary and high refinery margins seem unsustainable.