Oil prices declined on Tuesday, driven by apprehensions that a decelerating Chinese economy could potentially reduce demand.
This was despite increasing speculation that the U.S. Federal Reserve could initiate interest rate cuts as early as September.
Brent crude futures dropped by 70 cents, or 0.82%, settling at US$84.15 per barrel as of 1040 GMT, while U.S. West Texas Intermediate (WTI) crude fell 76 cents, or 0.93%, to US$81.15.
Yeap Jun Rong, the IG market strategist, highlighted that weaker economic indicators from China had raised doubts about optimistic projections for oil demand in the region. China’s economy expanded by 4.7% in April-June, its slowest pace since Q1 2023 and below a forecasted 5.1% in a Reuters poll, reflecting challenges from a prolonged property market downturn and employment uncertainties.
“2Q GDP and retail sales figures surprised on the downside significantly, with expectations for stronger stimulus measures at the Third Plenum possibly facing disappointment,” Yeap noted, referring to an upcoming economic meeting in Beijing.
Meanwhile, in the U.S., Federal Reserve Chair Jerome Powell’s remarks suggested a potential return to interest rate cuts soon, citing recent inflation data as bolstering confidence in achieving sustainable price increases aligned with the Fed’s targets. Lower interest rates typically stimulate economic activity and bolster oil demand.
However, analysts like Kelvin Wong from OANDA cautioned against excessive optimism, pointing out that upcoming U.S. retail sales data for June could signal weakness that might indirectly impact oil demand.
“Macro factors do not support higher oil prices in the short term, potentially capping WTI crude below $85 per barrel,” Wong emphasized in an email.
