Oil prices dropped by about five percent on Monday amid expectations of a potential return of Iranian oil to the market, alongside data showing that the Chinese economy is facing difficulties due to COVID restrictions and a deteriorating real estate sector. The price of North Sea Brent crude decreased by 5.1%, reaching $93.15 per barrel, while West Texas Intermediate crude fell by 5.3% to $87.23 per barrel.
Concurrently, stock markets experienced a decline, and trading in the dollar was mixed, with investors welcoming a decrease in inflation rates in the United States, even though it remains at its highest level in decades. Leading market analyst at OANDA, Craig Erlam, noted, "It has been a disappointing start to the week in financial markets as investor optimism collided with the reality of China's economic data."
The Chinese central bank unexpectedly cut its key interest rates on Monday, as data revealed a decline in the second-largest economy in the world. The data indicated that China's industrial production and retail sales growth in July were below expectations. Industrial production increased by 3.8% year-on-year, but this was a drop from the 3.9% recorded in June, which is significantly lower than analysts' expectations.
China's adherence to a "zero COVID cases" strategy is slowing economic recovery, as sudden lockdown measures and prolonged quarantine protocols are hitting business activity and consumer recovery hard. Meanwhile, Iranian Foreign Minister Hossein Amir Abdollahian stated that his country would present its "final proposals" regarding the revival of the 2015 nuclear agreement by midnight on Monday after Washington agreed to two proposals from Tehran.
An agreement would mean that Iranian crude output of 2.5 million barrels per day would no longer be subject to international sanctions, which would help alleviate supply pressures that have driven up prices. Oil prices, which were already significantly low due to Chinese economic data, fell further, recording a daily decline of over five percent.
Major stock markets in Europe closed with modest gains, while Wall Street stocks declined in morning trading. Market analyst Fouad Razagzadeh at City Index and FOREX.com explained that discussions of a U.S. recession resurfaced after a key industrial index turned negative. Markets are also awaiting the release of the minutes from the Federal Reserve's last monetary policy meeting in July on Wednesday, looking for clues regarding the U.S. central bank's interest rate plans. Investors are concerned that, after the Federal Reserve raised interest rates by three-quarters of a point, any further increase could stifle economic recovery.
