Commodities Week Ahead: China Holds Back Oil Rally in Replay of 2022
One year ago, when the run-up in oil prices came to a sudden halt, China and its overbearing controls on COVID were blamed. This week, Beijing is again the fall guy as crude loses momentum on its three-week-old rally. This time, it’s not the pandemic but China’s great economic hope itself that’s at fault.
Second quarter gross domestic product (GDP) data from China showed growth in the world’s No. 2 economy as well as the largest oil importer slowing substantially from the first quarter.
The Chinese economy also grew at a slower-than-expected pace from the prior year, as its biggest drivers — manufacturing and real estate activity — remained under pressure.
Doubts are beginning to grow now that global crude demand will be driven to record highs this year by China's determination to rebound at all costs, including using rate cuts to spur growth.
Beijing, instead, might be heading for a “liquidity trap” if it keeps relying on accommodative monetary policy in a deflationary environment, said Kelvin Ong of the online trading platform OANDA. He went on to say,
“To negate weak internal demand and eroding consumer confidence, expansionary fiscal stimulus measures are likely to be more effective than more interest rate cuts.”
Crude prices were down more than $1 a barrel in afternoon trade in Singapore — rare for a selloff of such magnitude in Asia — as traders digested the implications of the Chinese data and what that could mean for both global trade and oil.
New York-based West Texas Intermediate crude, or WTI, was down $1.05, or 1.4%, to $74.27 a barrel by 02:45 ET (06:45 GMT). The U.S. crude benchmark rose about 8% over three prior weeks.
London-traded Brent was down $1.09, or 1.4, to $78.78 a barrel. Like WTI, Brent had also
Read more on investing.com
