Oil falls after China’s disappointing rate cut

London — Oil prices slipped on Tuesday after China cut benchmark lending rates less than some expected while demand was seen rising in 2023, clouding the outlook for the world’s largest crude importer.

Brent crude was up 47c or 0.6% at $76.56 a barrel at 8.50am GMT. US West Texas Intermediate (WTI) crude for July was down 13c from Friday’s close at $71.65. The July contract expires at the end of trade on Tuesday.

The more active WTI crude contract for August delivery was down 18c from Friday at $71.75 per barrel. There was no settlement in the WTI contract on Monday due to a public holiday in the US.

On Tuesday, China cut two benchmark lending rates by 10 basis points each. The cuts, the first in 10 months, were less aggressive than some forecasts.

“The rate cuts … were widely expected, hence it did not offer a bullish push to the oil markets,” said Tina Teng, a markets analyst at CMC Markets in Auckland.

“Oil traders may need to see a materialised strong economic rebound in China to improve their outlook on oil demand,” Teng said.

The rate reductions follow recent economic data that showed China’s retail and factory sectors are struggling to sustain the momentum seen earlier this year.

Still, China’s 2023 crude oil demand is expected to rise 3.5% on 2022, a researcher at China National Petroleum Corporation’s (CNPC) research arm said on Tuesday.

The Chinese government met last week to discuss measures to spur growth in the economy, and several major banks have cut their 2023 economic growth forecasts for China amid concerns its post-Covid-19 recovery is faltering.

On Monday, two policymakers at the European Central Bank argued for more rate hikes amid risks of higher inflation. Markets also await testimony from US Federal Reserve chair Jerome Powell later in the week for future rate clues.

Higher interest rates reduce appetite for spending and can drive down oil demand.

On the supply side, Iran’s crude exports and oil output have hit new highs in 2023 despite US sanctions.

Russia is also set to increase seaborne diesel and gasoil exports this month, outweighing cuts by the Opec and its allies, including Moscow itself.

Reuters