Aug 16, 2023

The People’s Bank of China’s interest rate cut has had a negative impact on oil prices, with crude oil prices stumbling at the $84 level.


USOIL – Daily Chart

The price of US oil is currently at $80.57, with the potential to fall to $78 in the near future.

Oil prices dropped by more than 1% on Tuesday after slower-than-expected Chinese economic data increased concerns that Beijing’s unexpected cut in key policy rates would be insufficient to revive the country’s struggling post-pandemic recovery. Markets have been rising recently on expectations of Chinese stimulus, but a resurgence of property debt fears has added to the pressure.

The oil price has been boosted to $84 in recent weeks by supply cuts from Saudi Arabia and Russia. However, on Tuesday, China’s industrial output and retail sales data revealed that the recovery is slowing.

China’s economic growth has been slowing down, and there are now concerns that the country may not be able to reach its target of 5% growth this year without additional fiscal stimulus. Barclays has lowered its forecast for China’s 2023 gross domestic product (GDP) to 4.5%, citing the deterioration in the housing market as a key reason for the downgrade.

Analyst Phil Flynn said that oil prices are more volatile when the banking sector is unstable because oil is sensitive to interest rates, loans, and the overall health of the economy.

The Chinese economy’s refining sector grew by 17.4% year-over-year in July. Investors are now awaiting the release of US crude inventory data, with analysts polled by Reuters expecting a decrease in supply of around 2.1 million barrels in the week ending August 11. This will be followed by government data on Wednesday and the latest FOMC minutes, which will provide further insight into the Federal Reserve’s inflation strategy.

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