Oil prices plummet on potential Iran deal, stuttering China’s economy
NEW YORK, United States — Oil prices fell on Monday on prospects of Iranian oil returning to the market and data showing China’s economic recovery stutters under Covid-19 restrictions.
Stock markets were broadly flat and the dollar traded mixed as investors digested the latest developments, including China’s central bank’s surprise decision on Monday to cut interest rates amid a series of data showing industrial production and retail sales growth for July were below expectations.
“The risk of stagflation in the global economy is increasing, and the foundations for national economic recovery are not yet solid,” warned China’s National Bureau of Statistics.
Stagflation refers to long-lasting high inflation combined with rising unemployment and low growth.
Beijing’s rigid adherence to a zero-Covid strategy has held back economic recovery as rapid lockdowns and lengthy quarantines hurt business activity and the recovery of consumption.
Wall Street stocks initially fell on Chinese data and a gloomy reading from the New York Federal Reserve on regional manufacturing activity. But the shares had turned around by midday.
“The risk of a global recession is pretty high right now,” said FHN Financial’s Chris Low, adding that a silver lining to the weakening outlook is the expectation that the Federal Reserve could pivot faster and slow. its efforts to raise interest rates to suppress burning prices.
“The Fed will stop earlier if inflation goes away and it’s more likely to go away sooner as the global economy slows,” Low said.
But China’s weakened economy has weighed on oil prices, as has speculation that a revived nuclear deal could add Iranian crude to world markets.
US oil futures fell nearly 3% to end below $90 a barrel.
Iran’s foreign minister said Tehran would present its “final” proposal later on Monday on talks to revive its 2015 nuclear deal with world powers, after Washington agreed to key demands.
A deal would mean that Iran’s crude production of 2.5 million barrels a day would no longer be subject to international sanctions, helping to ease supply constraints that have driven prices up.
“Iran would flood the market,” said analyst Aditya Saraswat of energy research firm Rystad, who added the country could increase production by another million barrels a day.