Crude oil prices lost their gaining streak and declined on Tuesday, July 16, as investor sentiments were weighed down by worries that a slowing Chinese economy would crimp demand. This was despite a growing consensus that the US Federal Reserve could begin cutting its interest rate as soon as September.
Brent futures were down 82 cents, or one per cent, to $84.03 per barrel, while US West Texas Intermediate (WTI) crude was down 94 cents, or 1.1 per cent, at $80.97. Coming to domestic prices, crude oil futures last traded 0.91 per cent lower at ₹6,785 per barrel on the multi-commodity exchange (MCX).
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What’s weighing on crude oil prices?
-Analysts said weaker economic data continues to flow from China as continued government support programs have disappointed. Industry data suggested that many of China’s refineries are cutting back on weaker domestic fuel demand.
-The world’s second-largest economy grew 4.7 per cent in April-June, its slowest rate since the first quarter of 2023. It slowed from the previous quarter’s 5.3 per cent expansion, due to a protracted property downturn and job insecurity.
-The global economy is set for modest growth over the next two years amid cooling activity in the US, a bottoming-out in Europe, and stronger consumption and exports for China, said the International Monetary Fund (IMF) on Tuesday, July 16. However, risks to the path abound.
-In the US, Fed Chair Jerome Powell said that the three US inflation readings over the second quarter of this year “add somewhat to confidence” that the pace of price increases is returning to the central bank’s target in a uniform fashion, remarks which market participants interpreted as indicating that a turn to interest rate cuts may not be far off.
-Lower interest rates decrease the cost of borrowing, which can boost economic activity and oil demand. US retail sales were also unchanged in June, a show of consumer resilience that boosts economic growth prospects for the second quarter, helping ebb fears of a sharp economic slowdown. However, some analysts warned against being bullish, as expected weakness in macroeconomic data from the US could still indirectly hurt oil demand in the near term.
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Where are prices headed?
Analysts said that crude oil prices continued to decline amid concerns about Chinese demand following disappointing second-quarter GDP data. They added that this disappointing economic performance has heightened concerns about crude oil demand, contributing to lower oil prices.
‘’Crude oil prices fell as the dollar index recovered from its lows. However, US inflation expectations have decreased to 2.9 per cent, increasing the likelihood of Fed rate cuts in the September policy meetings, which could support crude oil prices. Crude oil has support at $80.00-$79.20 and resistance at $81.20-$81.90. In INR, crude oil has support at ₹6,780-6,715 and resistance at ₹6,910-7,000,” said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.
