Oil prices fell on Tuesday after China lowered its benchmark lending rates less than expected, raising concerns about the oil demand outlook in the world’s largest importer of crude oil.
Brent crude was down 19 cents at $75.90 a barrel at 0545 GMT. West Texas Intermediate (WTI) crude for July was $70.76, down $1.02 from Friday’s close. The July contract expires at the end of the trade on Tuesday.
The more active WTI crude oil contract for August delivery traded at $71.10 a barrel, down 83 cents from Friday. There was no action on the WTI contract as Monday was a public holiday in the US.
On Tuesday, China lowered its two benchmark lending rates, the one-year and five-year loan rate (LPR), by 10 basis points. For the first time in 10 months, the cuts were less than some estimates. 50% of analysts were expecting a 15 basis point cut in the 5-year LPR.
Rate cuts were widely expected and priced in, so they did not provide a bullish pressure on oil markets.
Oil traders need to see a strong economic recovery in China to improve their outlook for oil demand.
The rate cuts follow the latest economic data showing that China’s retail and factory sectors are struggling to maintain the momentum seen earlier this year.
The Chinese government met last week to discuss measures to spur economic growth, and several major banks lowered their 2023 economic growth forecasts for China amid concerns that the post-COVID recovery is faltering.
On Monday, two policymakers at the European Central Bank argued for further rate hikes amid high inflation risks. Downside risks to global growth remain a major hurdle to the oil demand outlook. Markets also await the Fed’s comments for future rate hints.
Higher interest rates reduce appetite for spending and lower oil demand.
On the supply side, Iran’s crude oil exports and oil production reached new highs in 2023 despite US sanctions.
Russia is also poised to increase its exports of diesel and kerosene by sea this month, despite cuts by allied producers, including the Organization of the Petroleum Exporting Countries (OPEC) and Moscow itself.
Supply recovered and surprisingly moved up in the US, in OPEC+ countries such as Nigeria, Iran, and Venezuela, and in some non-OPEC countries
According to some analysts, even if the OPEC+ cuts are extended until 2024, they will not be enough to bring global supply and demand into balance.
