China’s Rate Cut Raises Concerns Over Oil Demand, Prices Slip

Oil prices extended decline on Tuesday as China’s decision to cut benchmark lending rates fell short of expectations as concerns on demand for the commodity in the world’s largest importer deepened.

Brent crude declined by 19 cents to settle at $75.90 per barrel while U.S. West Texas Intermediate (WTI) crude dropped $1.02 to $70.76.

China’s decision to cut its one-year loan prime rate (LPR) and the five-year LPR by 10 basis points each marked the first rate cuts in 10 months. However, the cuts were not as aggressive as some had forecasted.

In a Reuters poll, 50% of respondents anticipated a 15-basis-point cut to the five-year LPR.

Tina Teng, a markets analyst at CMC Markets in Auckland, noted that the rate cuts were widely expected, resulting in no bullish impact on the oil markets. Teng further emphasized that oil traders may need to witness a tangible economic rebound in China to improve their outlook on oil demand.

The rate reductions come in the wake of recent economic data showing that China’s retail and factory sectors are struggling to maintain the momentum observed earlier this year. Concerns about China’s post-COVID recovery faltering have led to several major banks reducing their 2023 economic growth forecasts for the country.

Meanwhile, in Europe, two policymakers at the European Central Bank have advocated for more rate hikes amid increasing risks of higher inflation. Market participants are also eagerly awaiting testimony from U.S. Federal Reserve Chair Jerome Powell later in the week for potential hints regarding future rate decisions.ld.