Oil rates drop due to concerns over potential drop in demand from China

(MENAFN) Oil prices declined on Monday amid concerns about a potential drop in demand from China, the world's second-largest oil consumer, following data that indicated a slowdown in inflation. International benchmark Brent crude fell by 1.4 percent to USD77.50 per barrel by 10:45 am local time (0745 GMT), down from USD78.60 in the previous session. Similarly, US benchmark West Texas Intermediate (WTI) decreased by 0.82 percent to USD73.65 per barrel, compared to a prior close of USD74.84.

The data from China showed a modest year-over-year increase in the Consumer Price Index (CPI) of just 0.4 percent, while the Producer Price Index (PPI) dropped by 2.8 percent. This indicates a persistent deflationary trend, with stagnant consumer prices and declining producer prices reflecting weaker economic momentum, which in turn dampens expectations for oil demand.

Despite concerns about potential supply disruptions due to conflicts in the Middle East—an area crucial to global oil production—the downward pressure on prices remained significant. In the US, inflationary pressures appeared to be easing, as the Producer Price Index (PPI) showed no monthly change in September, coming in below forecasts. However, it rose by 1.8 percent year-over-year, slightly exceeding expectations. The core PPI, which excludes food and energy, increased by 0.2 percent month-on-month and 2.8 percent year-on-year, aligning with or surpassing forecasts.

Market sentiment is shifting towards expectations that the US Federal Reserve will maintain interest rates in its upcoming meeting. Speculation is also growing that the Fed may implement two rate cuts of 25 basis points each by the end of the year, which could lead to a weaker dollar and potentially increase global oil demand.

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