Oil Rises Ahead of Chinese Economic Data Release
Crude oil prices rallied early on Monday as investors awaited the release of Chinese economic data as well as comments from US Federal Reserve (Fed) officials to obtain guidance on further interest rate increases.
International benchmark Brent crude traded at $84.14 per barrel after a 0.23% rise from the closing price on Friday of $83.95 per barrel. The American benchmark West Texas Intermediate (WTI) traded at the same time at $80.11 per barrel, up 0.35% from the previous session’s close of $79.83 per barrel.
The Chinese government’s initiatives to boost its economy and markets lent support to crude oil prices during early Asian trade.
At the weekend, the government announced plans to reduce by half the stamp duty on stock transactions as of Monday. This is the first decrease of its kind since the 2008 global financial crisis and is part of the government’s most recent stimulus measures in response to the nation’s patchy economic recovery.
The world’s second-largest economy had also cut a key interest rate amid concerns about the post-pandemic recovery. Investors are now awaiting China’s forthcoming industrial data to see the oil demand trajectory of the world’s largest oil importer.
Meanwhile, oil markets also focused on US Fed officials’ statements after Federal Reserve Chair Jerome Powell on Friday signalled additional interest rate hikes while also highlighting ‘progress has been made’.
‘Although inflation has moved down from its peak—a welcome development—it remains too high,’ Powell said during his keynote speech in Jackson Hole, Wyoming.
Oil closed the previous week with limited losses as investors weigh demand worries over uncertainties about the global economy against potential supply tightness.
International benchmark Brent crude traded at $84.42 per barrel on Friday, decreasing by around 0.45% relative to the closing price of $84.80 a barrel on Friday last week. The American benchmark West Texas Intermediate (WTI) saw gains while trading at $80.11 per barrel at the same time.
The grade posted a 1.40% fall from last Friday’s session that closed at $81.25 a barrel. Both benchmarks were buoyant starting the week with tight global supply concerns after lower output from OPEC+ countries, Saudi Arabia and Russia.
However, demand worries, triggered by fears of a slowdown in economic growth in China and the expectation of further interest rate hikes in the US, again underpinned price decreases later in the day. Last week, the People’s Bank of China (PBOC) lowered its one-year loan prime rate to 3.45% from 3.55% but left its five-year rate unchanged.
Despite tight global supply concerns that kept oil prices trading close to their highest levels this year, price declines continued throughout the week over growing global demand worries.
Oil prices slumped on Wednesday and extended their losses on Thursday, driven by bearish economic data from key economies.
The manufacturing PMI in the US fell to 47 from 49 in July, while service sector business activity growth was the slowest since February at 51 in August. Business activity in the eurozone declined more than expected, while Britain’s economy looked set to shrink this quarter.
Meanwhile, data released by the US Energy Information Administration (EIA) late Wednesday showed that commercial crude oil inventories in the country decreased by 6.1 million barrels during the week ending Aug. 18.
The fall in inventory, which was higher than the American Petroleum Institute’s expectation of a drop of 2.42 million barrels, reflected strong demand in the world’s top oil-consuming country. However, US gasoline inventories rose by around 1.5 million barrels during the same week, signalling a probable drop in demand towards the end of the summer travel season.
Prices saw a limited rally on Friday ahead of US Federal Reserve (Fed) Chairman Jerome Powell’s speech due later in the day at the Jackson Hole Economic Policy Symposium, where he is expected to deliver clues about the country’s interest rate policy for the remainder of the year.
Powell, in his statement after the bank’s meeting in July, spoke of the possibility of interest rate increases again at the Fed’s next meeting in September if inflation and labour force data require it. In his speech on Friday, market players anticipate that Powell will continue his message that interest rates should stay higher for longer than expected.
The possibility of higher interest rates in the US, the world’s largest oil consumer, reinforces concerns that economic activity will slow down further this year and reduce demand for crude oil. The US dollar rose to its strongest level since June on Friday. A stronger dollar makes crude more expensive for international buyers. #Oil Rises Ahead of Chinese Economic Data Release
