Although an unexpected interest rate cut by China’s central bank initially pressured the oil market, crude oil futures prices closed higher on Thursday. This was supported by a stabilization and rebound in other risk assets and optimistic U.S. economic data that boosted demand growth expectations. Brent crude and WTI crude both rebounded from the six-week lows reached on Wednesday.
At the close, light sweet crude oil futures for September delivery on the New York Mercantile Exchange rose by 69 cents to $78.28 per barrel, an increase of 0.89%. London Brent crude oil futures for September delivery rose by 66 cents to $82.37 per barrel, an increase of 0.81%.
International crude oil futures prices fell overnight due to overall bearish market sentiment, leading to a sell-off in risk assets, including oil and gold. Fortunately, oil prices turned from a decline to a rise later. Velandera Energy Partners Managing Director Manish Raj stated that instead of selling when oil prices fell, they chose to increase their positions. They noted that they did not follow the market blindly during the oil market’s deviation from fundamentals but acted contrary to the trend.
From a demand perspective, on Thursday, the People’s Bank of China unexpectedly lowered the medium-term lending facility (MLF) rate from 2.5% to 2.3%. Earlier this week, the bank also unexpectedly reduced the 7-day reverse repo rate. These actions have sparked concerns about China’s economic condition, which could impact the country’s oil demand. Although China’s demand signals are not weak, there is a lot of noise.
China, the world’s second-largest economy and second-largest oil consumer, as well as the largest crude oil importer, directly drives global oil demand through its industrial production and energy needs. Any slowdown in China’s economic growth or policy adjustments can influence the expectations of oil demand and thus global oil prices. For instance, an economic slowdown may lead to a decrease in oil demand, thereby exerting downward pressure on prices.
Fortunately, preliminary data released by the U.S. Commerce Department showed that in the second quarter of this year, the U.S. real GDP grew at an annual rate of 2.8%, higher than the market expectation of 2% and the first quarter’s growth of 1.4%. This data supports the view that the U.S. economy is heading for a soft landing. The U.S., the world’s largest oil consumer, had an oil consumption of about 19 million barrels per day in 2022, far exceeding the approximately 14 million barrels per day consumed by China, the second-largest consumer. Therefore, a strong U.S. economy helps boost expectations of its oil demand.
Additionally, data from the U.S. Energy Information Administration (EIA) showed that U.S. crude oil and gasoline inventories fell more than expected last week, which provided upward support for oil prices.
From a technical analysis perspective, after recent pullbacks, crude oil prices are in an oversold range.
