Oil Slips as Chinese Demand Woes Outweigh Supply Risks
7/22 8:52 AM
Oil Slips as Chinese Demand Woes Outweigh Supply Risks VIENNA (DTN) -- Oil futures closest to expiration on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange softened Monday morning after two back-to-back weeks of losses. Stunted economic growth in China last quarter and the lack of major policy responses overshadowed flaring tensions in the Middle East, wildfires in Alberta and firmed up chances of a U.S. rate cut in September. Even two interest rate cuts by China's central bank weren't enough to relieve concerns in the light of struggling domestic consumption and swelling debt-to-capital ratios. The People's Bank of China on Monday cut both 1-year and 5-year loan prime rates by 10 basis points. While the first interest rate cut in 11 months came unexpected, it was also deemed too little to revive growth rates to levels seen at the beginning of the year. Chinese interest rate cuts have a muted effect on consumer spending compared to their international counter parts, and a separate stimulus program does not seem to be on the table for now. A slowdown in domestic growth and poor refining margins led to crude oil throughput trailing expectations. On the bright side, we can expect a seasonal pick up in refining activity as operable capacity is set to increase with state refiners returning from maintenance and two new plants ramping up operations. And given the increased odds of U.S. rate cuts starting in September, the PBOC may follow suit. A measurable cooldown in U.S. inflation and diffident growth outlooks have over the past month reopened the door to lowering interest rates, with now more than 91% of investors expecting the first 25 basis point cut at the Federal Reserve's September 18 meeting, compared to less than 60% four weeks ago, according to CME's FedWatch Tool. The Bureau of Economic Analysis' first projection for second quarter GDP growth out Thursday and the June PCE price index scheduled for Friday release will help gauge future interest rate policy. Near 9:45 AM ET, WTI futures for August delivery were trading near $79.39 bbl, down $0.74, and Brent for September delivery hovered around $81.84 bbl, down $0.79. RBOB and ULSD for August delivery dropped to $2.4276 gal and $2.4052 gal, respectively. Karim Bastati, karim.bastati@dtn.com, www.dtn.com (c) Copyright 2024 DTN, LLC. All rights reserved.
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