In Asian trading on Monday oil prices dropped, which wiped out some of the big gains from the previous trading session amidst concerns that lower targets of growth in China might cut demand for oil and ongoing worries over the compliance of Russia with a deal by global oil producers to lower output.
However, worries about the escalating violence across the Middle East places a floor underneath prices.
Futures for Brent crude were down 47 cents equal to 0.8% to $55.42 per barrel on Monday morning after settling over 1.5% higher the session before.
U.S Intermediate crude futures were down 47 cents as well equal to a drop of 0.9% to $52.85 per barrel after increasing by 1.4% in the prior session.
The big drag that is affecting Monday’s markets is the lowering of targets of growth by China and the tighter regulator controls that implies lower demand for commodities and oil in general, an analyst in Singapore explained.
China is aiming to grow its economy 6.5% in 2017, Premier Li Keqiang announced in a report at the start of parliament Sunday.
The projected growth by the Chinese government is less than the growth from last year of 6.7%.
China is also planning to cut coal and steel output in 2017 in its effort to control pollution, said the country’s top planner on Sunday. The just appointed China bank regulator vowed to strengthen supervision of the banking sector, in particular lending.
At the same time, figures from the energy ministry in Russia released late last week showed oil output in February was unchanged from its January output of 11.10 million barrels a day, which cast doubt on the moves by Russia to rein in its output to comply with the pact it made with world oil producers in 2016.
Despite the uncertainty over cuts in output, crude inventories amongst members of OECD would become normalized slightly quicker that was expected during the year due to larger that had been expected cuts in production and higher 2016 demand, said an analyst in London on Monday.
On Friday prices of oil rose as the U.S. dollar weakened after remarks by Janet Yellen the Chairperson at the Federal Reserve suggest an increase in interest rate would come March 15 following the Fed’s two day meeting.
A weaker dollar helps boost commodity prices, including crude, while a hike in interest rates would support the U.S. dollar.