The PBOC interest rate cut has hurt oil, with the price of crude oil stumbling at the $84.00 level.
USOIL – Daily Chart
USOIL trades at $80.57, with the risk of a drop to $78.00 in the first instance.
Oil prices fell over 1% on Tuesday after slower Chinese economic data added to fears that Beijing’s unexpected cut in key policy rates was insufficient to rejuvenate the country’s struggling post-pandemic recovery. Markets have been rising recently on expectations of Chinese stimulus, but a resurgence of property debt fears has added to the pressure.
Supply cuts by Saudi Arabia and Russia have helped to rally oil prices over the last weeks to $84. However, on Tuesday, China’s industrial output and retail sales data showed that the recovery is slowing.
There are now concerns that China could struggle to meet its growth target of 5% for the year without additional fiscal stimulus. Barclays cut its forecast Tuesday for China’s 2023 gross domestic product to 4.5% due to the deterioration in the housing market.
“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 analyst Phil Flynn.
The Chinese economy did see growth in refining, with a 17.4% increase in July from a year earlier. Investors are now awaiting US crude inventory data, with analysts polled by Reuters expecting to see a drop in supply of around 2.1 million barrels in the week to Aug. 11. That will be followed by government data on Wednesday and the latest FOMC minutes, which will give further insight into the Federal Reserve’s inflation strategy.
