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Oil prices wobble on worries over China economy, US rate path
Global Banking & Finance Review®
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By Sudarshan Varadhan
SINGAPORE (Reuters) – Oil prices were choppy on Thursday after falling over the past three sessions, with the undertone grim on worries that slowing growth in China and possible further U.S. interest rate hikes will weaken fuel demand in the world’s two biggest economies.
Brent crude futures were flat at $83.45 a barrel by 0645 GMT, after initially falling 0.5%. U.S. West Texas Intermediate crude (WTI) was down 8 cents at $79.30.
“China’s economic concerns and broad risk-off sentiment on Wall Street pressed on the oil markets, with a strong USD adding to the downside pressure at the same time,” said Tina Teng, an analyst at CMC Markets.
Traders will closely watch Chinese economic data and government policy moves, in addition to U.S. oil inventory data as oil producers in the country could start increasing output to gain market share amid production cuts by the OPEC+ group, Teng said.
In China, missed payments on investment products by a leading Chinese trust firm and a fall in home prices have added to worries that its deepening property crisis is stifling what little momentum the economy has left.
China’s central bank unexpectedly cut key policy rates for the second time in three months this week but analysts worry it may not be enough to arrest the economy’s downward spiral.
Minutes of the U.S. Federal Reserve’s July meeting released on Wednesday also weighed on oil prices, as they showed that the central bank’s officials did not give strong indications about pausing rate hikes, as they continued to prioritise the battle against inflation.
Higher interest rates increase borrowing costs for businesses and consumers, which could slow economic growth and reduce oil demand.
“Crude prices are going to struggle here as we have bearish sentiment in the world’s two largest economies,” said Edward Moya, an analyst at OANDA.
(Reporting by Katya Golubkova and Sudarshan Varadhan; Editing by Sonali Paul, Muralikumar Anantharaman and Kim Coghill)
Brent crude is a major trading classification of crude oil originating from the North Sea. It serves as a benchmark for oil prices globally and is used to price two-thirds of the world's crude oil.
Interest rates are the cost of borrowing money or the return on savings, expressed as a percentage. They are influenced by central banks and affect economic activity, including spending and investment.
Fuel demand refers to the quantity of fuel that consumers and businesses require for various uses, including transportation, heating, and industrial processes. It is influenced by economic growth and energy prices.
Economic growth is the increase in the production of goods and services in an economy over a period of time. It is typically measured by the rise in gross domestic product (GDP).
OPEC+ is a coalition of oil-producing countries that includes the Organization of the Petroleum Exporting Countries (OPEC) and other oil-producing nations. They collaborate to manage oil production and influence global oil prices.
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