Oil started lower on Monday as China set around 5%, a lower-than-expected target for economic growth this year, and investors cautiously await testimony from Federal Reserve Chairman Jerome Powell this week.
Brent crude futures were down 58 cents, or 0.7%, at $85.25 a barrel at 0340 GMT. West Texas Intermediate (WTI) crude futures also fell 0.7% to $79.12 a barrel.
Crude oil is in a struggle with optimism about the reopening of China and tensions over the Fed’s hawkish policy hurting the US economy.
China’s closely watched growth outlook announced on Sunday, fell short of the 5.5% gross domestic product (GDP) growth target last year. GDP grew only 3% last year. Policy sources said that a range as high as 6% could be set for 2023.
Prime Minister Li Keqiang said on Sunday that the foundation for stable growth in China needs to be consolidated, insufficient demand remains a significant problem, and the prospects for private investors and businesses are unstable.
Both crude oil gauges rose more than $1 on Friday after sources said the report that the United Arab Emirates was considering leaving OPEC was untrue.
The recovery was greater than the drop reported in the news, putting crude oil prices in overbought territory, so it’s not surprising that prices corrected lower this morning.
At the same time, oil prices are likely to be affected by worldwide interest rate hikes as global central banks tighten their policies amid growing inflation fears. Traders are factoring in rate hikes across the world, but smaller increases are expected compared to last year.
Federal Reserve Governor Jerome Powell will testify in Congress on Tuesday and Wednesday. He will likely be questioned whether larger hikes are needed in the world’s largest oil-consuming country.
The February employment report in the USA is also on the agenda. Future US rate hikes will also likely depend on what the February payroll report will reveal on Friday, followed by the February inflation report to be released next week.
Over the weekend, European Central Bank Governor Christine Lagarde said they would likely need to raise interest rates this month to keep inflation in check.