Oil Prices Slip as China’s Economic Slowdown Undermines Recovery Hopes

Oil prices faced a downward slide on Tuesday as lackluster Chinese economic data coupled with skepticism over the impact of Beijing’s surprise reduction in key policy rates weighed on the prospects of a robust post-pandemic revival.

Brent crude oil, the international benchmark for Nigerian oil, declined by 54 cent to $85.67 a barrel while U.S. West Texas Intermediate crude dropped by 74 cents to reach $81.77.

The concerted supply cuts implemented by Saudi Arabia and Russia, orchestrated through the OPEC+ coalition comprising the Organization of the Petroleum Exporting Countries (OPEC) and its allies, have driven a price rally over the past seven weeks.

However, the latest figures concerning China’s industrial output and retail sales, unveiled on Tuesday, painted a grim picture of the nation’s economic health, further intensifying pressure on a post-pandemic recovery that was already stumbling. This led authorities to initiate a reduction in key policy rates in an attempt to invigorate economic activity.

“China often plays the role of fire douser when the oil market gets too comfortable,” remarked John Evans of oil brokerage firm PVM, emphasizing the country’s considerable influence on global oil dynamics.

China’s central bank executed a marginal cut to interest rates, prompted by alarming data reflecting mounting economic stress, particularly within the property sector.

However, analysts are skeptical about the magnitude of this move, suggesting that it might not be substantial enough to make a meaningful difference.

Worries are surfacing that China could fall short of its targeted 5% growth for the year unless there’s a boost in fiscal stimulus. Barclays recently revised its 2023 growth forecast for China’s gross domestic product to 4.5%, citing a swift deterioration in the housing market.

Despite these concerns, China’s refinery throughput in July displayed a 17.4% increase compared to the previous year, driven by elevated output to meet domestic summer travel demand and capitalize on favorable regional profit margins for fuel exports.

Yet, the sentiment toward China appears to be souring, with PVM’s Evans noting growing disillusionment with what markets perceive as “tepid stimulus” from officials who consistently promise more than they deliver.