WTI plummets as surprise PBoC rate cuts raise uncertainty over China’s economic outlook
|- The Oil price dives further amid growing concerns over China’s economic outlook.
- The PBoC surprisingly reduced its Loan Prime Rate by 10 bps.
- Kamala Harris’s nomination for Democrats’ leader has increased US political uncertainty.
West Texas intermediate (WTI), futures on NYMEX, extends its downside below $78.00 in Monday’s American session. The Oil price weakens as an unexpected decision by the People’s Bank of China (PBoC) to cut its benchmark rates has pointed to concerns over the China’s economic outlook. China is the world’s largest Oil importer and an uncertainty over its economic prospects is an unfavorable situation for the Oil price.
The PBoC lowered its one-year and five-year Loan Prime Rate (LPR) by 10 basis points to 3.35% and 3.85%, respectively. It is expected that the rate-cut move from the PBoC has come due to weaker-than-expected Q2 Gross Domestic Product (GDP) growth rate. The data came in showed that the economy grew by 0.7%, slower than estimates of 1.1% and the former release of 1.5%.
Apart from growing demand concerns, easing fears of the Oil market remaining tight have also weighed heavily on the Oil price. A note from Morgan Stanley showed that it expects the supply from OPEC and non-OPEC players to grow by about 2.5 million barrels per day in 2025, well ahead of demand growth.
Meanwhile, the United States (US) political uncertainty has also weighed on the Oil price. According to market speculation, Doanld Trump-led-Republican is expected to win presidential elections. Trump has promised to increase US Oil production if he comes out victorious.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, edges lower as US Vice President Kamala Harris appears as nominee of Democrats.
Going forward, the Oil price will be influenced by preliminary S&P Global Manufacturing PMI data from various nations, which will indicate the global demand outlook.
Brent Crude Oil FAQs
Brent Crude Oil is a type of Crude Oil found in the North Sea that is used as a benchmark for international Oil prices. It is considered ‘light’ and ‘sweet’ because of its high gravity and low sulfur content, making it easier to refine into gasoline and other high-value products. Brent Crude Oil serves as a reference price for approximately two-thirds of the world's internationally traded Oil supplies. Its popularity rests on its availability and stability: the North Sea region has well-established infrastructure for Oil production and transportation, ensuring a reliable and consistent supply.
Like all assets supply and demand are the key drivers of Brent Crude Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of Brent Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of Brent Crude Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 13 Oil producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact Brent Crude Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
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