Oil dips as Chinese demand outlook weakens

16 Jul 2024 , 09:38 AM

Oil prices fell on Tuesday as concerns about a weakening Chinese economy hampered demand, although a growing agreement that the US Federal Reserve will begin dropping its main interest rate as early as September restricted falls.

Brent futures declined 9 cents, or 0.1%, to $84.76 per barrel, while US West Texas Intermediate (WTI) crude down 13 cents, or 0.2%, to $81.78.

China’s economy grew far less than projected in the second quarter, hampered by a long-running housing crisis and job uncertainty.

The world’s second-largest economy expanded by 4.7% in April-June, the slowest rate since the first quarter of 2023 and falling short of a Reuters poll’s projection of 5.1% growth.

China’s refinery output decreased by 3.7% in June from the previous year, owing to planned maintenance, reduced processing margins, and low gasoline demand, according to government figures released on Monday.

Meanwhile, Fed Chair Jerome Powell said on Monday that three U.S. inflation readings in the second quarter of this year “add somewhat to confidence” that the pace of price increases is returning to the central bank’s target in a sustainable manner, remarks that market participants interpreted as indicating that a shift to interest rate cuts is not far off.

Lower interest rates reduce the cost of borrowing, thereby boosting economic activity and oil demand.

On the supply side, Houthi forces in Yemen announced on Monday that in response to Israel’s shelling of Gaza, they used ballistic missiles, drones, and booby-trapped boats to target three vessels, including an oil tanker, in the Red and Mediterranean seas.

While the Middle East conflict has not had an impact on supply, attacks on ships in the Red Sea have caused vessels to take longer routes, resulting in more oil remaining on the water.

Meanwhile, Russian Deputy Prime Minister Alexander Novak stated on Monday that the global oil market will be balanced in the second half of the year and subsequently as a result of a production agreement between the Organisation of Petroleum Exporting Countries and its partners, known as OPEC+.

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