Oil Prices Drop on US Inflation Data, Weak China Outlook
By Adedapo Adesanya
Oil prices settled lower on Thursday as speculation about another US interest rate hike faded following inflation data, with a weak outlook from China pressuring the market.
Brent crude fell by $1.15 or 1.3 per cent during the session to $86.40 per barrel, as the West Texas Intermediate (WTI) crude lost $1.58 or 1.9 per cent to close at $82.82 per barrel.
US consumer prices data for July released on Thursday fuelled speculation that the US Federal Reserve is nearing the end of its aggressive rate hike cycle.
The consumer price index rose 0.2 per cent last month, matching the gain in June. Shelter accounted for more than 90 per cent of the increase in the CPI, with rental costs increasing by 0.4 per cent.
Oil prices have been boosted in recent days by extensions to output cuts by Saudi Arabia and Russia, alongside supply fears driven by the potential for conflict between Russia and Ukraine in the Black Sea region to threaten Russian oil shipments.
But recent data showed the consumer sector in China fell into deflation, and factory gate prices extended declines in July, raising concerns about fuel demand in the world’s second-largest economy.
The US also moved to curtail some investment in China in sensitive technologies like computer chips and requires government notification in other tech sectors.
Market analysts warned that as China’s data gets worse, it is only going to make it more difficult for China to ramp up its economy.
Support for prices also came as the Organisation of the Petroleum Exporting Countries (OPEC) said in its monthly report on Thursday it expected a healthy oil market for the rest of the year.
The group also stuck by its forecast for robust oil demand in 2024 as the outlook for world economic growth slightly improves.
OPEC said it expects world oil demand to rise by 2.25 million barrels per day in 2024, compared with growth of 2.44 million barrels per day in 2023. Both forecasts were unchanged from last month.
The report also increased OPEC’s forecast for world economic growth this year to 2.7 per cent from 2.6 per cent and raised next year’s figure by the same increment to 2.6 per cent, saying growth in the US, Brazil and Russia had surpassed initial expectations in the first half of 2023.
“Despite the latest positive developments, several uncertainties regarding economic growth in the second half of 2023 and 2024 require cautious monitoring,” OPEC said, adding that these include continued high inflation and the prospect of further increases to interest rates.