After China dropped benchmark lending rates less than expected on Tuesday, oil prices fell, raising concerns about oil consumption in the world’s largest crude importer.
Brent crude fell 5 cents to $76.04 at 0310 GMT. July WTI crude dropped 99 cents from Friday’s finish to $70.79. Tuesday’s trade ends July’s contract.
WTI crude for August delivery fell 71 cents to $71.22. U.S. holidays prevented the WTI contract settlement on Monday.
On Tuesday, China dropped its one-year and five-year loan prime rates by ten basis points. The first cutbacks in 10 months were smaller than expected, with 50% of Reuters poll respondents expecting a 15-bps 5-year LPR drop.
“The rate cuts… were widely expected, hence it did not offer a bullish push to the oil markets,” said Auckland-based CMC Markets analyst Tina Teng.
“Oil traders may need to see a strong economic rebound in China to improve their outlook on oil demand,” Teng added.
Recent economic figures showed China’s retail and industry sectors are failing to maintain momentum.
The Chinese government convened last week to discuss economic development measures, and some major banks have trimmed their 2023 economic growth projections for China amid concerns its post-COVID recovery is weakening.
Two European Central Bank officials urged more rate hikes on Monday amid inflation threats. Markets await Jerome Powell’s testimony later in the week for rate hints.
Interest rates lower spending and oil demand. Iran’s crude exports and oil output rose in 2023 despite U.S. sanctions.
This month, Russia will expand seaborne diesel and gasoil shipments, outpacing OPEC and its allies, including Moscow.
“Supply has rebounded and surprised to the upside from a number of sources: U.S., other non-OPEC, not to mention within OPEC+ e.g. Nigeria, Iran, Venezuela,” JPMorgan analysts wrote.
The bank reduced its Brent pricing projection from $90 to $81 a barrel this year.
JPMorgan analysts warned OPEC+ cutbacks extended until 2024 wouldn’t balance global supply and demand.
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