WTI Drops $4.0, Copper Sheds 2.0% as Weak Chinese Data Sparks Demand Concerns

Key Points

• WTI dropped to new multi-month lows in the $87s per barrel on Monday as weak China data trigger demand concerns. 
• Copper dipped 2.0% for the same reasons. 
• Gold, meanwhile, was hit by a stronger US dollar, as focus shifts to upcoming US macro events. 

WTI Dumps As Weak Chinese Data Triggers Demand Worries

Front-month futures of the US benchmark for sweet light crude oil, West Texas Intermediary or WTI, fell $4.0 on Monday as Chinese economic data for July released on Monday showed a surprise slowdown in economic activity, as the world’s second-largest economy struggles to recover from stop-start lockdowns in H1 2022 and an ongoing downturn in the country’s property sector.

The weaker than expected Chinese data, which showed the country’s industrial sector, consumer and labor market weakening last month, sparked fears about a global economic slowdown and a subsequent weakening in global oil demand. The data dump showed that Chinese refinery output slipped to 12.53 million in July, its weakest since March 2020. WTI subsequently hit its weakest levels since early February in the $87s per barrel, with technicians targeting a test of $85 in the near term.

Analysts also cited Iran nuclear deal talks as weighing on sentiment. Iran’s foreign minister said it will respond to a draft agreement proposed by the EU by the end of the day on Monday, before calling on US negotiators to demonstrate flexibility. If the US and Iran can agree a deal that returns them to compliance with the 2015 nuclear pact, that would pave the way for a removal of current US sanctions on Iranian oil exports, potentially freeing an additional 1 million barrels per day in exports to global markets and easing supply concerns.

Other analysts cited a fall in open interest in crude oil markets as worsening volatility. A fall in open interest suggests less futures trading speculators are taking positions on crude oil. According to Reuters, open interest in Brent futures has fallen 20% this month versus August 2021, which UBS oil analyst Giovanni Staunovo said could be resulting in higher volumes to the downside.

Copper Also Drops on China Demand Doubts as Strong Buck Hits Gold

The aforementioned weak economic data out of China alongside a sharp rally in the US dollar also weighed heavily on industrial metal prices, given China’s status as the pre-eminent global consumer of metals in construction. Bloomberg’s Industrial Metals Subindex was down around 2.0% on Monday, as were spot copper prices on global markets to around $3.60.

A rebound in US equities helped cushion the losses for spot copper prices, which had been as low as the $3.55s earlier in the day, with some also citing a surprise interest rate cut from China’s central bank the PBoC earlier in the day as offering support. Nonetheless, for copper, it was the worst day in more than one month.

Gold price also performed poorly, despite the fact that global growth concerns were in focus, lower global bond yields and easing from the central bank of the world’s second-largest economy, all factors that might typically be expected to support gold prices. The strong US dollar, which rallied across the board except from against its safe-haven G10 peer the yen, was the main reason for gold’s struggles, with the precious metal ultimately falling over $20 on Monday to just under $1,780.

Metals markets now switch their focus to US macro data/events, with the main events of this week being Wednesday’s July Retail Sales and FOMC minutes release.