WASHINGTON: Oil prices slipped on Tuesday due to concerns about a slowing Chinese economy impacting demand. However, the decline was limited by growing expectations that the U.S. Federal Reserve may start cutting its key interest rate as soon as September.
By 0630 GMT, Brent futures fell by 57 cents, or 0.67%, to $84.28 a barrel, while U.S. West Texas Intermediate (WTI) crude dropped 59 cents, or 0.72%, to $81.32.
IG market strategist Yeap Jun Rong noted in an email that weaker Chinese economic data has raised doubts about the optimistic outlook for Chinese oil demand. Official data showed that the world’s second-largest economy grew by 4.7% in April-June, its slowest rate since the first quarter of 2023, missing the Reuters poll forecast of 5.1% and down from the previous quarter’s 5.3% expansion. The slowdown was attributed to a prolonged property downturn and job insecurity.
“Its 2Q GDP and retail sales figures had significantly underperformed expectations, and there are risks that anticipated stronger stimulus measures at the Third Plenum in Beijing this week may disappoint,” Yeap added.
In the U.S., Federal Reserve Chair Jerome Powell stated on Monday that three inflation readings over the second quarter of this year have increased confidence that the pace of price increases is returning to the central bank’s target. Market participants interpreted this as a sign that interest rate cuts might be approaching.
Lower interest rates reduce borrowing costs, which can boost economic activity and oil demand. However, some analysts cautioned against being overly optimistic, noting that expected weakness in some U.S. macroeconomic data could still negatively impact oil demand in the near term.
“Macro factors are not favoring higher oil prices in the near term, with WTI crude likely capped below $85 per barrel due to the prospect of weaker U.S. retail sales for June, which are due later today,” said OANDA senior market analyst Kelvin Wong in an email.
