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Oil Prices Fall As China Cuts Policy Rates

By Timothy Fries CommoditiesAug 15, 2022 01:02PM ET
www.investing.com/analysis/oil-prices-fall-as-china-cuts-policy-rates-200628531
Oil Prices Fall As China Cuts Policy Rates
By Timothy Fries   |  Aug 15, 2022 01:02PM ET
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WTI, Brent Down At Multi-Month Lows

Crude oil prices are down at multi-month lows after China released worse-than-expected economic activity data and issued an unexpected interest rate cut. The People’s Bank of China (PBOC) slashed key interest rates by 10 basis points in a bid to support the country’s deteriorating economy, marking another sign of turmoil. 

West Texas Intermediate (WTI) crude price fell below $88 per barrel, or 5% on the day, falling to its lowest level since the start of the year. Similarly, the international benchmark Brent crude slipped by a similar amount to below $94 a barrel, its lowest point since March.

Oil prices are responsible for more than half of the gas costs. The latest drop, worsened by China’s weak economic activity, pushed average gas prices in the U.S. to $3.965 on Monday, marking the 62nd consecutive day of declines.

China Unexpectedly Cuts Rates By 10 Bps

Slowing China’s economy and the abrupt rate cut sent the country’s national debt rallying on Monday, while the 10-year yield fell to its lowest level in over two years. China’s rate cut comes just a week after analysts argued that the PBOC is unlikely to slash rates any further, while international funds continued to cut their holdings for five straight months.

Carie Li, global market strategist at DBS Bank (Hong Kong) Ltd., said:

“The rate cut is a sign that the PBOC for now is prioritizing growth over curbing leverage. The 10-year yield could fall to 2.60% in the near term. We may start to see some diversification demand from foreign investors into Chinese bonds.

China’s industrial production, sales in the retail sector, and fixed-asset investment all missed consensus estimates as the country’s stringent zero-COVID policy impeded economic recovery. Chinese government locked down more than 1 million people in Wuhan last month after reports of four asymptomatic coronavirus cases in one of the major districts.

Ipek Ozkardeskaya, market strategist at Swissquote, explained:

“Of course, bad data from China also weighs on recession worries for the rest of the world.”

China’s economy saw a sharp contraction in the second quarter of 2022, with its gross domestic product (GDP) growing just 0.4% year-over-year. The GDP slowdown marked China’s worst economic performance since the first quarter of 2020.

 
Oil Prices Fall As China Cuts Policy Rates
 

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Oil Prices Fall As China Cuts Policy Rates

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Comments (2)
ASHOK MALI
ASHOK MALI Aug 15, 2022 2:20PM ET
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this time buy ya sell
Avinash Kureel
Avinash Kureel Aug 15, 2022 2:20PM ET
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sell, imo
ASHOK MALI
ASHOK MALI Aug 15, 2022 2:20PM ET
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this time buy ya sell
 
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