Oil prices tread water with China rate cut in focus

Investing.com– Oil prices moved little in early Asian trade on Monday after breaking a seven-week winning streak, with focus turning largely to an upcoming interest rate decision in major importer China. 

Concerns over slowing demand in China and rising U.S. interest rates had driven steep losses in crude prices over the past week, pulling them away from 2023 highs.

Focus is now squarely on more stimulus measures from the world’s largest oil importer, with the People’s Bank of China (PBOC) now set to cut its key later in the day.

fell 0.2% to $84.69 a barrel, while fell 0.1% to $80.59 a barrel by 20:17 ET (00:17 GMT). 

China set to cut loan prime rate as economy stalls 

The PBOC is set to trim its medium and long-term loan prime rates by 15 basis points each, as it moves to keep up liquidity injections and support economic growth.

The move is widely expected by markets, considering that the PBOC cut its short and medium-term benchmark rates last week. 

But the expected cut also comes as a raft of recent indicators showed that the world’s largest oil importer is struggling with a slowing post-COVID economic recovery, which appeared to have dented its oil demand in the past month. Recent data showed that China’s oil imports tumbled from near record highs in July.

The PBOC vowed to roll out more liquidity measures to support growth, as well as help fish the Chinese economy out of a deflationary trend. 

This also came amid a worsening real estate crisis in China, with a slew of major developers facing debt defaults due to slowing sales and construction. Investors are now calling for more targeted measures to support the sector, although analysts say such a scenario appears unlikely as China tries to curb its economic dependence on real estate.

Tighter supply, steady U.S. demand still underpin oil 

But while oil prices fell through the past week, they were still trading between 2% and 3% higher for 2023, with the outlook also looking buoyant after deep production cuts by Saudi Arabia and Russia.

The world’s largest oil producers said that recent production cuts will extend until at least end-September- a scenario that is expected to limit crude supplies by nearly 70 million barrels over the 45 days.

The prospect of tighter supplies has largely kept a floor under crude prices, with analysts expecting prices to remain relatively higher for the remainder of the year.

Robust fuel consumption in the U.S., particularly through the travel-heavy summer season, also pointed to tighter markets. Still, the outlook for U.S. demand was somewhat soured by the prospect of higher interest rates. 

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