Oil Surges as China Announces Lending Rate Cut
By Adedapo Adesanya
Oil climbed by over 3 per cent on Tuesday after China’s central bank lowered a short-term lending rate for the first time in 10 months.
Brent crude futures climbed $2.51 or 3.5 per cent to $74.35 a barrel, while the US West Texas Intermediate (WTI) crude futures went up by $2.31 or 3.4 per cent to $69.43 a barrel.
The People’s Bank of China (PBOC) cut its seven-day reverse repo rate by 10 basis points to 1.90 per cent from 2.00 per cent on Tuesday, when it injected 2 billion yuan ($279.97 million) through the short-term bond instrument.
The cut to the lending rate signals possible easing for longer-term rates over the next week and beyond as demand and investor sentiment weakens, adding to the case for urgent policy stimulus to sustain growth.
This move helped restore market confidence and prop up a stalling post-pandemic recovery in the world’s second-largest economy.
This is after the oil prices on Monday fell by about 4 per cent, in part because of concerns about the Chinese economy after disappointing economic data last week.
The market was pressured by a rise in global supplies, along with concerns about demand growth, ahead of a US Federal Reserve monetary policy meeting concluding on Wednesday.
The US Federal Reserve rate hikes have strengthened the Dollar, making dollar-denominated commodities more expensive for holders of other currencies and weighing on oil prices, so a rate hike pause could be bullish.
The European Central Bank (ECB) is expected to hike interest rates on Thursday.
These worries about demand have eased the temporary boost in oil prices from Saudi Arabia’s pledge announced early this month to cut more production in July.
The Organisation of Petroleum Exporting Countries (OPEC) kept its forecast for 2023 global oil demand growth steady for a fourth month on Tuesday, slightly increasing expectations of Chinese demand growth.
Global oil demand this year will rise by 2.35 million barrels per day or 2.4 per cent, the cartel said.
The producer group warned that the world economy faced rising uncertainty and slower growth in the second half of the year.
“There are rising uncertainties regarding economic growth in the second half of 2023 amid ongoing high inflation, already elevated key interest rates and tight labour markets,” OPEC said in its report.
“Moreover, it is still unclear as to how and when the geopolitical conflict in Eastern Europe might be resolved,” it added, referring to Ukraine.
Another monthly report by the International Energy Agency (IEA), due on Wednesday, will provide further trading cues.