Oil prices experienced a decline on Tuesday in response to China’s moderate reduction of benchmark lending rates, leaving some market observers questioning the outlook for the world’s largest crude importer amidst an anticipated increase in demand throughout the year.
As of 0850 GMT, Brent crude witnessed a slight upswing of 47 cents or 0.6%, reaching $76.56 per barrel. Conversely, U.S. West Texas Intermediate (WTI) crude for July witnessed a decrease of 13 cents from the previous close, resting at $71.65. It is worth noting that the July contract is set to expire at the end of today’s trading session.
The more active WTI crude contract, designated for August delivery, also experienced a decline of 18 cents from its previous position, settling at $71.75 per barrel. It should be highlighted that there was no settlement in the WTI contract on Monday due to a public holiday in the United States.
China, taking action on Tuesday, decided to cut two benchmark lending rates by 10 basis points each. Nevertheless, these rate cuts, which mark the first in the past 10 months, fell short of certain expectations.
According to Tina Teng, a markets analyst at CMC Markets in Auckland, the rate cuts were widely anticipated and therefore failed to deliver a bullish boost to the oil markets.
Teng further emphasized that oil traders will likely require tangible evidence of a robust economic rebound in China before revising their outlook on oil demand.
These rate reductions follow recent economic data, revealing the struggles faced by China’s retail and factory sectors in maintaining the earlier momentum witnessed this year.
Nonetheless, a researcher from the research arm of China National Petroleum Corporation (CNPC) stated on Tuesday that China’s crude oil demand for 2023 is expected to increase by 3.5% compared to the previous year.
In response to concerns regarding the faltering post-COVID recovery in China, the Chinese government held discussions last week to explore measures aimed at stimulating economic growth. Furthermore, several major banks have adjusted their 2023 economic growth forecasts for China, expressing apprehension about the situation.
In the global arena, two policymakers from the European Central Bank advocated for additional rate hikes on Monday due to the risks associated with heightened inflation. Additionally, market participants eagerly await the upcoming testimony by U.S. Federal Reserve Chair Jerome Powell later this week, hoping to glean insights into future rate adjustments.
It is important to note that higher interest rates tend to curb spending appetites and consequently lead to a decline in oil demand.
On the supply side, despite facing U.S. sanctions, Iran’s crude exports and oil output have reached new highs in 2023.
Moreover, Russia intends to bolster its seaborne diesel and gasoil exports this month, thereby offsetting the production cuts implemented by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Moscow itself.
