Oil Prices Slip on Worries of Slowing Chinese Economy
In a twist of events, oil prices took a hit on Tuesday amidst concerns about a slowing Chinese economy affecting demand. However, hopes of the US Federal Reserve cutting its key interest rate in September helped to cushion the blow, as reported by Reuters.
Brent futures saw a decline of 57 cents, or 0.67 percent, landing at $84.28 a barrel by 09:30 a.m. Saudi time. Meanwhile, US West Texas Intermediate crude dropped 59 cents, or 0.72 percent, reaching $81.32.
IG market strategist Yeap Jun Rong raised doubts about the optimism surrounding Chinese oil demand outlook due to weaker economic data coming out of China. The country’s growth slowed to 4.7 percent in April-June, its weakest since the first quarter of 2023 and falling short of the 5.1 percent forecast in a Reuters poll. Factors such as a prolonged property downturn and job insecurity contributed to the slowdown.
With anticipation for stronger stimulus measures at the Third Plenum in Beijing this week, Yeap warned of potential disappointment. The recent 2Q GDP and retail sales figures from China surprised on the downside, raising concerns among market participants.
On the other side of the globe, Fed Chair Jerome Powell hinted at possible interest rate cuts in the near future, citing three US inflation readings from the second quarter that point towards a return to the central bank’s target. Lower interest rates could boost economic activity and oil demand, which is a silver lining for the oil market.
Despite the optimism, some analysts urged caution as weakness in US macroeconomic data could indirectly impact oil demand. OANDA senior market analyst Kelvin Wong warned that macro factors may keep oil prices capped below $85/barrel for WTI crude, especially with the looming release of weaker US retail sales data for June.