Oil falls as weak Chinese data offsets progress on the US debt ceiling

Oil prices turned lower after starting trading on a higher note on Wednesday, due to fears of slowing demand from China, the world’s largest oil importer, after weaker-than-expected economic data.

Brent crude futures for August delivery fell 28 cents to $73.43 a barrel by 0250 GMT, while US West Texas Intermediate crude fell 26 cents to $69.20 a barrel. Both fell more than 4 percent on Tuesday.

The official index of China’s manufacturing purchasing managers fell to 48.8 from 49.2 in April, according to data from the National Bureau of Statistics. This is the lowest level for the index in five months and below the 50-point barrier that separates growth from contraction. The PMI missed expectations, rising to 49.4.

In the United States, sentiment improved slightly after legislation brokered by President Joe Biden and House Speaker Kevin McCarthy to raise the US debt ceiling of $31.4 trillion passed a significant hurdle late Tuesday, as it was passed by the Rules Committee and sent to the full House for discussion and a vote. It is expected on Wednesday.

If Congress, both houses of the House and Senate, pass the legislation, the Biden administration will likely not need to negotiate the debt ceiling again before the November 2024 presidential election.

The deadline to repay the US debt roughly coincides with the meeting of the Organization of the Petroleum Exporting Countries and allies including Russia, in what is known as the OPEC + bloc, on June 4. It is not yet clear whether the bloc will increase production cuts while the decline in prices weighs on the market.

Last week, Saudi Energy Minister Prince Abdulaziz bin Salman called on short sellers betting that oil prices would fall to be “cautious,” in a possible sign that OPEC+ may cut production.

However, statements by Russian oil officials and sources, including Deputy Prime Minister Alexander Novak, indicate that the world’s third largest oil producer tends to leave production unchanged.

In April, Saudi Arabia and other members of OPEC + announced further cuts in oil production by about 1.2 million barrels per day, bringing the total volume of the bloc’s cuts to 3.66 million barrels per day, according to Reuters calculations.

Traders are also awaiting industry data on US crude inventories due later on Wednesday.

Seven analysts polled by Reuters estimated crude oil inventories fell by about 1.2 million barrels in the week ending May 26.