Oil prices fall on growth concerns in China, expectations of federal interest rate cut
Date
7/16/2024 5:42:52 AM
(MENAFN) Oil prices experienced a slight decline on Tuesday, driven by apprehensions that a slowdown in the Chinese Economy could dampen global demand. However, the market was buoyed by growing expectations that the US Federal Reserve would commence interest rate cuts starting in September, which helped mitigate the overall price drop.
As of 12:21 GMT, brent crude futures dipped by 9 cents, or 0.1 percent, to USD84.76 per barrel, while US West Texas Intermediate (WTI) crude slipped by 13 cents, or 0.2 percent, to USD81.78 per barrel. The decline in oil prices comes in response to concerns over China's economic performance, with official data revealing a growth rate of 4.7 percent in the second quarter of 2024. This figure fell short of expectations and marked the slowest pace since early 2023, influenced by ongoing challenges in the property sector and employment insecurity.
Additionally, China's refinery throughput dropped by 3.7 percent year-on-year in June, extending declines for the third consecutive month. Factors contributing to this decline include scheduled maintenance, lower refining margins, and subdued fuel demand, leading independent plants to curtail production.
Amidst these economic indicators, Federal Reserve Chair Jerome Powell's recent comments have injected optimism into the market. Powell indicated that the Fed's confidence in managing inflation has been bolstered by three consecutive positive inflation readings in the second quarter of 2024. This sentiment has reinforced expectations among investors that the Fed may soon embark on a path of interest rate reductions, aimed at stimulating economic growth.
Lower interest rates typically reduce borrowing costs, potentially boosting economic activity and consequently, demand for commodities like oil. Market participants interpreted Powell's remarks as a signal that the Fed could implement rate cuts sooner rather than later, providing a counterbalance to the concerns arising from China's economic slowdown.
Overall, while uncertainties persist regarding global oil demand, particularly influenced by developments in the Chinese economy, the prospect of accommodative monetary policy in the US continues to influence oil market dynamics. Investors will continue to monitor economic data and central bank signals closely for further insights into future oil price movements.
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