Oil prices slide as China's economic challenges and stronger Dollar persist

21 Jun 2023 , 10:17 AM

The dollar gained strength on a resurgence in the U.S. housing market, and concerns lingered that monetary stimulus may not be sufficient to resuscitate China’s growth. Meanwhile, oil prices declined for the third consecutive day on Wednesday.

U.S. West Texas Intermediate (WTI) crude futures were down 14 cents, or 0.2%, at $71.06 at 00:43 GMT, while Brent futures were down 21 cents, or 0.3%, at $75.69 per barrel.

The dollar strengthened as statistics indicated an increase in permits for new construction and a jump in U.S. homebuilding in May, reaching the highest level in over a year. This suggests that the housing industry may be recovering after being severely impacted by Federal Reserve rate hikes.

A stronger dollar affects oil demand as it raises the cost of the commodity for customers using foreign currencies.

China, the world’s largest oil importer, is experiencing a sputtering recovery, which continues to worry the market. In an effort to stimulate economic growth, China reduced its benchmark lending prime rates (LPR) on Tuesday by a smaller-than-expected 10 basis points, marking the first rate cut in ten months. This decision was made in response to recent economic data showing challenges in sustaining growth in China’s industrial and retail sectors.

The oil market remains cautious ahead of U.S. Federal Reserve Chair Jerome Powell’s speech before Congress later on Wednesday, which is expected to provide insights into potential rate changes in the world’s largest economy.

On Tuesday, two Federal Reserve policymakers and an economist, who has been proposed to join them on the Fed’s Washington-based board, stated that their top priority is to lower excessive inflation in the country to ensure sustainable growth.

Later on Wednesday, the American Petroleum Institute business group will provide statistics on U.S. oil inventories, while the Energy Information Administration will release data on Thursday. Both reports were delayed by one day due to the Juneteenth holiday on Monday.

According to five analysts surveyed by Reuters, crude stockpiles decreased by an average of 400,000 barrels in the week leading up to June 16.

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