Crude oil prices fell on Tuesday as concerns about a slowdown in China’s economy hurt demand, although a growing consensus that the U.S. Federal Reserve will start cutting its key interest rates as soon as September limited the declines.
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Brent futures fell 9 cents, or 0.1%, to $84.76 a barrel by 12:21 GMT, while U.S. West Texas Intermediate (WTI) crude fell 13 cents, or 0.2%, to $81.78.
China’s economy grew
China’s economy grew much slower than expected in the second quarter, hampered by a long-running property slump and job insecurity.
Official data showed the world’s second-largest economy grew 4.7% in April-June, the slowest since the first quarter of 2023 and below the 5.1% forecast in a Reuters poll. It is also slower than the 5.3% expansion in the previous quarter.
Fuel Demand
China’s refinery output fell 3.7% in June from a year earlier, official data showed on Monday, falling for a third straight month due to planned maintenance, while lower processing margins and a slump in fuel demand forced independent plants to cut output.
Meanwhile, Fed Chairman Jerome Powell said on Monday that three U.S. inflation readings in the second quarter of this year “increase confidence somewhat” that the pace of price growth is returning to the central bank’s target in a sustainable way, comments interpreted by market participants as a sign a turn to interest rate cuts may not be far off.
Interest Rates
Lower interest rates lower the cost of borrowing, which can boost economic activity and oil demand.
On the supply side, Houthi fighters in Yemen – responding to Israel’s bombing of Gaza – targeted three ships including an oil tanker in the Red and Mediterranean seas with ballistic missiles, drones and bomb-laden boats, he said on Monday.
While the crisis in the Middle East has not affected supplies, attacks on ships in the Red Sea have forced vessels to take longer routes, meaning oil remains on the water for longer periods of time.
OPEC
On the other hand, Russian Deputy Prime Minister Alexander Novak said on Monday that the global oil market would remain balanced in the second half of the year and beyond due to the production agreement between the Organization of Petroleum Exporting Countries and its allies, collectively known as OPEC+.
