Oil prices fall after weaker-than-expected US and Chinese data

Oil prices fell on Monday as disappointing data from the United States and China complicated the economic outlook, driving riskier assets away.

International oil benchmark Brent crude fell to $92.78 a barrel as bleak reports from the world’s two major economies added to fears that a slowdown in global growth could hurt demand from industrialists and consumers. US marker West Texas Intermediate slid to $86.82, its lowest level since early February – before Russia invaded Ukraine.

Both indicators then pared their losses later in the day, with Brent trading down 3.1% at $95.10 and WTI at $89.41, down 2.9%.

Monday’s moves came after the Chinese economic data showed that retail sales rose 2.7% year-on-year in July, while industrial production rose 3.8%. Economists had forecast larger increases of 5% and 4.6%, respectively.

Goldman Sachs analysts said the data indicated the recovery in growth from lockdowns in April and May spurred by the Omicron Covid-19 variant “stalled and even reversed slightly in July.”

“This points to still-weak domestic demand amid sporadic Covid outbreaks, production cuts in some energy-intensive industries and [the] negative impact of recent risk events in the real estate sector,” they added.

In order to revive growth, central bank of china on Monday cut its medium-term lending rate, through which it provides one-year loans to the banking system, by 0.1 percentage point to 2.75%.

“Oil markets are struggling to pause as weak macro data continues to put downward pressure on [them]said analysts at Oilytics, noting that the “gloomy” Chinese data came after poor consumer sentiment numbers in Europe last week.

Traders will also closely follow talks on reviving the Iran nuclear deal as Tehran weighs a new EU proposal to revive the talks. Any progress toward removing sanctions on Iranian exports could give rough markets a boost.

“Oil prices may swing more than a pendulum when it comes to perpetual Iranian nuclear talks,” said Tamas Varga of PVM Oil Associates.

Data out of the United States added to gloomy sentiment about the global growth outlook on Monday. A New York Federal Reserve survey of manufacturers recorded minus 31.3 for August from 11.1 the previous month. Economists polled by Reuters had forecast a reading of 5. The unexpected fall in the Empire State gauge marked the index’s second-biggest monthly decline on record.

Line chart of the Empire State General Business Conditions Index showing New York factory activity contracting sharply in August

On Wall Street, US stocks posted moderate gains after starting the session down. The S&P 500 ended the day up 0.4%, while the tech-heavy Nasdaq Composite rose 0.6%. The broad S&P last week recorded its fourth consecutive week of earnings.

In bond markets, the yield on the 10-year US Treasury fell 0.05 percentage points to 2.8% as the price of the benchmark instrument rose. US government debt is generally considered a safe haven asset in times of economic crisis.

On Wednesday, market participants will scrutinize the minutes of the Federal Open Market Committee’s latest monetary policy meeting for clues about the central bank’s tightening plans.

The dollar gained 0.8% against a basket of six major currencies on Monday. In Europe, the regional Stoxx 600 stock index closed up 0.3%. Chinese stocks fell, with the CSI 300 gauge of stocks listed in Shanghai and Shenzhen closing 0.1% and Hong Kong’s Hang Seng index down 0.7%.

Leave a Comment