China Strategies Continue To Pressure Oil Prices As Risk-Off Sentiment Takes Hold

Oil traders on Tuesday continued to express their disappointment in China, this time with what they perceived to be a minuscule cut in its key lending rates; this combined with lingering worry over the country's slower demand growth caused further modest price losses for crude.

Brent fell 19 cents to settle at $75.90 per barrel, and West Texas Intermediate fell $1.28 to settle at $70.50 after China announced that it cut its benchmark loan prime rates (LPR) by 10 basis points for the first time in 10 months; this was in reaction to data showing that its retail and factory sectors were struggling to maintain momentum.

Tina Teng, analyst at CMC Markets, said, "Oil traders may need to see a materialised strong economic rebound in China to improve their outlook on oil demand."

Still, demand in China as well as India is expected to rise in the second half of 2023, and "India's booming aviation sector will also contribute to overall demand growth," according to Eurasia Group.

Also, Beijing is considering deploying a broad package of economic stimulus measures, with Yi Gang, governor of the People's Bank of China, suggesting that more flexibility in monetary policy including "counter-cyclical adjustments" could be enacted.

But with traders seemingly in a sustained risk-off mood, Ed Moya, senior market analyst at Oanda Corporation, felt compelled to remark that, "This shortened week looks like it could be an ugly one for oil."

Ample supply from Russia and Iran has bolstered the availability of crude, and this combined with central bank hikes continues to have negative ramifications on prices overall.

In other oil related news on Tuesday, modeling from the Canada Energy Regulator showed that if the world achieves net-zero greenhouse gas emissions by 2050 a collapse in global oil prices would result, to as low as $35 per barrel by 2030 and $24 per barrel by 2050.

The Regulator added that Canada's crude production would fall to 1.2 million barrels per day by 2050, 76 percent below 2022 levels.

By contrast, the Regulator reported that if Canada achieves net-zero by 2050 but China and India move more slowly, global oil prices will remain above $60 per barrel and Canadian oil production will decline by just 22 percent.