Oil price continues to slump after weak data from China

Latest weak economic data released by the Chinese government on Monday sparks fear among investors that the oil demand in the country will continue to decline. The declining demand in China, together with larger output in Russia is causing the commodities price to plunge on Monday.

Reuters reported that the price of the Brent crude oil went down to $48.71 per barrel on Monday, almost 1.6 percent decline. While the price of the future contract for oil also down 1.6 percent to $45.84 a barrel.

Despite the effort by the government including its latest key official meeting in Beijing to lay out a 5-year plans for China, the sluggish economy momentum still continues. Currently, the factory output is still falling for the eight consecutive months due to cautious taken by many businesses as the demand is unpredicted.

Data compiled by the Market Watch shows that the Caixin China Manufacturing Purchasing Manager's index increased in October by 1.1 from 47.2 points recorded in September.

Based on the index, it suggests that factory activity is slowly increasing. However, the official gauge of China's factory activity for October is still unchanged at 49.8 in October. This means that there is no expansion in factory activity.

An analyst from National Australia Bank, Vyanne Lai said that "This suggests that China's traditional sector of heavy industry and production will continue to contract for a while, which leads to less demand for oil."

Russia oil supply is currently at 10.78 million barrels per day, one of its largest output so far. The move is not favoured by other countries as it will keep the price unbalanced, however with Russian plans to make sure its market share is not disrupted by other OPEC's nation it is high likely that the large output will continue.

Besides the data from the Chinese authority, investors are also worried with the outcome from the Fed meeting that is expected to start in December according to the Channel News Asia.

A strategist from First NZ Capital Ltd, Chris Green said that "We're not expecting a protracted downturn but it will require further policy response from the PBoC (People's Bank of China) to stabilise the growth profile in China.

The bigger thing this week is the US jobs data, which could reinforce the prospects of a December move by the Fed"

According to some analysts, the oil price is expected to continue its downtrend until the demand and supply are balanced.

However, with the new Iran's deal the country will slowly start to produce oil and further increase the world oil supply. Currently, the oil price is traded at nearly halved from its price during the same period on 2014.