Due to concerns about Chinese demand, crude oil prices have declined in the global commodities market, relieving pressure on energy expenditures. Tuesday’s retracement of oil prices followed China’s slowing economic growth and the strengthening of the US dollar amid expectations of a third-quarter Fed Funds rate cut.
Tuesday saw a drop in oil prices as concerns about a slowing economy in China—the world’s largest importer of crude oil—caused concern. International benchmark Brent crude closed at $84.23 per barrel today, down 0.73% from the previous trading session’s closing price of $84.85 per barrel. At the same time, the U.S. benchmark West Texas Intermediate (WTI) was trading at $80.22 per barrel, down 0.77% from the previous session’s closing price of $80.84.
The price action in oil yesterday was choppy. US dollar movements, Chinese demand concerns, and expectations of a tighter global oil balance through the third quarter of the year all contributed to this choppy session. The gross domestic product (GDP) of China rose by 4.7% in the second quarter of 2024, below market expectations, according to official figures on Monday.
The country’s economy expanded by 5.3% in the first quarter, and the market forecast was a GDP growth rate of 5.1% in the second quarter, the National Bureau of Statistics said. In addition, refinery activity in China slowed further in June. Refineries processed around 14.25 million barrels per day in the month, down 3.7% year over year.
Meanwhile, cumulative crude processed over the first six months of the year came in at 14.5 mb/d, down 0.4%, ING commodities strategists said in an email note. Trade and output numbers also suggest that China’s apparent oil demand fell to around 13.7 mb/d in June, the lowest level since February 2023.
Elsewhere, the US dollar index rose by 0.18% to 104.065 at 09.39 a.m. local time (0639 GMT), compared to the previous trading session close. The higher US dollar curbs oil demand and supports price declines.
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However, increased expectations that the US Federal Reserve’s (Fed) interest rate cut will start soon have limited further price declines. The Fed is receiving’more good’ inflation data, paving the way for its first interest rate cut later this year, Chair Jerome Powell said Monday.
Speaking at the Economic Club of Washington, DC, Powell reiterated his comments that the US central bank is looking for ‘greater confidence’ that inflation is returning to its 2% target.
Powell noted the Fed does not need to wait until inflation hits its 2% long-term target to begin lowering interest rates because of the lagging effect of monetary tightening on inflation data. Market players interpreted Powell’s remarks as a return to interest rate cuts that may not be far off.
