Oil prices settled over 1% lower on Tuesday, marking the third consecutive day of losses, as concerns over a slowing Chinese economy weighed on demand. However, declines were limited by growing consensus that the U.S. Federal Reserve could start cutting its key interest rate as early as September.
Brent futures closed down $1.12, or 1.3%, at $83.73 a barrel, while U.S. West Texas Intermediate (WTI) crude fell $1.15, or 1.4%, to $80.76.
“Weaker economic data continues to flow from China, with government support programs falling short of expectations, leading many of China’s refineries to cut back on production due to weaker fuel demand,” said Dennis Kissler, senior vice president of trading at BOK Financial.
The world’s second-largest economy grew 4.7% in April-June, according to official data, its slowest rate since the first quarter of 2023 and missing a 5.1% forecast in a Reuters poll. Growth slowed from the previous quarter’s 5.3% expansion, hampered by a prolonged property downturn and job insecurity.
Meanwhile, the global economy is projected to experience modest growth over the next two years amid cooling activity in the U.S., a bottoming-out in Europe, and stronger consumption and exports in China, according to the International Monetary Fund. However, risks remain significant.
In the U.S., Fed Chair Jerome Powell stated on Monday that the three inflation readings over the second quarter “add somewhat to confidence” that the pace of price increases is returning to the central bank’s target in a sustainable manner. Market participants interpreted this as a sign that interest rate cuts might be forthcoming.
Lower interest rates reduce borrowing costs, potentially boosting economic activity and oil demand.
U.S. retail sales remained unchanged in June, demonstrating consumer resilience and boosting economic growth prospects for the second quarter, alleviating fears of a sharp economic slowdown.
Federal Reserve Governor Adriana Kugler suggested that it might be appropriate to begin easing monetary policy later this year if economic conditions continue to improve.
However, some analysts warned against being overly optimistic, as expected weakness in some U.S. macroeconomic data could still indirectly impact oil demand in the near term.
U.S. crude inventories fell by an average of 33,000 barrels last week, according to a Reuters poll on Tuesday. Inventory data from the American Petroleum Institute was expected later in the day, with government data anticipated on Wednesday.
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