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Oil drops over 1% on worries about Chinese economy

Published Aug 14, 2023 08:40PM ET Updated Aug 15, 2023 05:06PM ET
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© Reuters. FILE PHOTO: A VLCC oil tanker is seen at a crude oil terminal in Ningbo Zhoushan port, Zhejiang province, China May 16, 2017. Picture taken May 16, 2017. REUTERS/Stringer /File Photo
 
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By Stephanie Kelly

NEW YORK (Reuters) - Oil prices fell over 1% on Tuesday on sluggish Chinese economic data coupled with fears that Beijing's unexpected cut in key policy rates was not sufficiently substantial to rejuvenate the country's sputtering post-pandemic recovery.

Brent crude futures fell $1.32, or 1.5%, to settle at $84.89 a barrel, while U.S. West Texas Intermediate crude (WTI) (CLc1) dropped $1.52, or 1.8% to $80.99.

Supply cuts by Saudi Arabia and Russia, part of the OPEC+ group comprising the Organization of the Petroleum Exporting Countries (OPEC) and allies, have helped to galvanise a rally in prices over the past seven weeks.

Both Brent and WTI, however, have fallen for two consecutive sessions as the oil market takes a breath, said Andrew Lipow, president at Lipow Oil Associates in Houston.

Weighing on sentiment, China's industrial output and retail sales data showed the economy slowed further last month, intensifying pressure on already faltering growth and prompting authorities to cut key policy rates to bolster economic activity.

When the oil market appears to be comfortable, it is often the case that China is the number one fire douser, throwing a wet blanket over those dreaming of prices north of $90, said John Evans of oil broker PVM. China is the world's biggest oil importer.

China's central bank lowered interest rates marginally after the data that highlighted intensifying pressure on the economy, mainly from the property sector, though analysts say the cut was too small to make a meaningful difference.

There are concerns China could struggle to meet its growth target of about 5% for the year without more fiscal stimulus.

Barclays (LON:BARC) cut its forecast for China's 2023 growth in gross domestic product to 4.5%, citing a faster-than-expected deterioration in the housing market.

Also adding to risk-off sentiment, an analyst at Fitch Ratings warned that U.S. banks, including JPMorgan Chase (NYSE:JPM), could be downgraded if the agency further cuts its assessment of the operating environment for the industry, according to a report from CNBC.

"When the banking sector is shaky, oil gets shakier because it is so sensitive to interest rates, loans and the general health of the economy," said Phil Flynn, an analyst at Price Futures Group.

On a brighter note, refinery throughput in China rose in July 17.4% from a year earlier as refiners kept output elevated to meet demand for domestic summer travel and to cash in on high regional profit margins by exporting fuel.

In U.S. supply, crude stocks dropped by about 6.2 million barrels last week, according to market sources citing American Petroleum Institute figures released late Tuesday. [API/S]

Ahead of weekly government data due on Wednesday, analysts polled by Reuters estimated on average that crude inventories fell by about 2.3 million barrels last week. [EIA/S]

Oil drops over 1% on worries about Chinese economy
 

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Comments (3)
Tom Michaels
Tom Michaels Aug 15, 2023 9:52AM ET
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Boo hoo, world wide scam.
Barry Nickerson
Subbuilder Aug 15, 2023 7:01AM ET
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I thought China bought Russian oil at a discount.  Why are they always the excuse for the rest of the world prices?
Tre Hsi
Tre Hsi Aug 15, 2023 7:01AM ET
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they did increase their russian oil purchase, but even with the high volume that only account for about 25% of Chinese oil import
First Last
First Last Aug 15, 2023 7:01AM ET
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China is the world's #2 oil consumer.
Robert Cutler
Robert Cutler Aug 15, 2023 7:01AM ET
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Crude oil $PPB is seeking Putin's age
Otis Grant
Otis Grant Aug 15, 2023 5:25AM ET
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What kind of loser wants oil at 90 plus per barrel? Obviously they don't give 2 shh its about the consumer
donald terry
donald terry Aug 15, 2023 5:25AM ET
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Ones that want to see Biden out of office.
Miguel Ferreira
DirtyBull Aug 15, 2023 5:25AM ET
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Agree! Probably ride a bicycle or a skate and he doesn't go to the supermarket.
jeff fuhrman
jeff fuhrman Aug 15, 2023 5:25AM ET
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$90..I want a $120. Making millions on energy stocks!!! To the moon. Let's go!!!!
Tommy Lambert
Tommy Lambert Aug 15, 2023 5:25AM ET
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ummm, losers that were smart and bought oil stocks when oil was down big.
 
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