More Oil and Commodity Weakness As China Economy Slows?

Crude Oil has been tumbling lower since August and one of the main reasons for this has been the weakness in the Chinese economy. Last week we saw a retrace above $70, but buyers couldn’t hold the gains above that major level and on Friday the price returned lower below this level, suggesting that the weakness continues, with the weekend data from China likely to weigh further on Oil prices.

U.S. WTI crude oil prices initially fell below $65 by Tuesday. However, as OPEC+ delayed its planned October output increase and the Gulf of Mexico partially shut down operations in anticipation of an approaching hurricane, by Thursday, oil prices had rebounded to over $70. Despite this recovery, crude oil prices closed lower on Friday, driven by growing concerns over a potential global economic downturn, particularly in China.

Crude Oil Chart Daily – Buyers Unable to Push to the Previous Support

As the world’s largest oil importer, China’s economic troubles became a focal point for the market after the country’s inflation rate declined in August. This added to the pressure on crude oil, resuming selling activity on Friday. Today we had the economic data for August from China, such as Retail Sales, Industrial Production etc, which came below expectations, continuing t0 show further weakness in the Chinese economy.

Chinese Economic Data (August)

• Retail Sales: +2.1% YoY vs 2.5% expected
  • Previous: +2.7% in July
  • Implication: Slower-than-expected retail growth may signal weakened consumer demand, possibly due to household concerns about economic uncertainty or inflation.
• Industrial Production:
  • Growth: +4.5% YoY vs 4.8% expected
  • Previous: +5.1% in July
  • Implication: Lower-than-expected industrial output reflects a deceleration in manufacturing, potentially driven by weaker global demand or domestic constraints such as power shortages or raw material costs.
• Fixed Asset Investment (YTD):
  • Growth: +3.4% YoY vs 3.5% expected
  • Previous: 3.6% in July
  • Implication: The slight dip in fixed asset investment, a key driver for long-term growth, suggests caution in infrastructure and property investments amid property market distress and policy shifts.
• Unemployment Rate:
  • Rate: 5.3% vs 5.2% expected
  • Previous: 5.2% in July
  • Implication: Rising unemployment, particularly among younger workers, reflects structural issues in the labor market and slow recovery in key sectors like services and technology.

Real Estate Market:

• Home Prices:
  • Yearly Decline: -5.3% YoY in August (sharpest drop in 9 years)
  • Previous Month: -4.9% YoY in July
  • Monthly Decline: -0.7% MoM (unchanged from July’s -0.7%)
  • Implication: The accelerating decline in home prices underscores a deepening property market slump, potentially exacerbated by excess supply, credit tightening, and reduced buyer confidence.

Key Chinese Data Takeaways:

• Consumer Weakness: Lower-than-expected retail sales and industrial output may indicate weakened domestic and external demand.
• Investment Slowdown: Reduced fixed asset investment signals cautious spending on infrastructure and real estate development.
• Housing Pressure: The property market remains under severe pressure, with falling prices likely dampening overall economic recovery.
• Rising Unemployment: Slightly rising unemployment could reflect challenges in absorbing labor, especially in struggling industries like construction and services.

US WTI Crude Oil Live Chart