Oil prices experienced a decline on Tuesday due to growing apprehensions surrounding the impact of aggressive monetary tightening on global economic activity and subsequent crude demand.
As of 08:40 ET (12:40 GMT), U.S. crude futures saw a 1.1% decrease, reaching $68.62 per barrel, while the Brent contract fell by 1% to $73.61 per barrel.
Chinese Economic Growth in Focus
Initially, the crude market displayed positive momentum on Tuesday, buoyed by Chinese Premier Li Qiang’s assurance of additional stimulus measures to attain the country’s annual economic growth target of approximately 5%. China, being the largest crude importer worldwide, holds significant influence over the market.
While China’s GDP grew by 4.5% year-on-year in the first quarter of the year, subsequent progress has been notably slower, prompting numerous major banks to revise their growth forecasts downward.
Analysts at ING remarked, “Oil demand indicators for China have been encouraging thus far, with increased crude oil imports and greater apparent domestic demand.
However, concerns arise regarding the sustainability of this trend, considering certain weaknesses in the Chinese economy, particularly in industrial production and the property sector.”
Nevertheless, these initial gains were quickly overshadowed by European Central Bank President Christine Lagarde’s statement during a gathering of global central bankers in Portugal. Lagarde suggested that eurozone inflation had entered a new phase likely to persist, implying prolonged implementation of restrictive monetary policies that could affect global demand.
This sentiment echoed the views of Gita Gopinath, Deputy Managing Director of the International Monetary Fund, who emphasized the necessity for central banks, including the ECB, to remain dedicated to combatting inflation despite potential risks to economic growth.
Turning to the United States, the world’s largest consumer of energy, Morgan Stanley adjusted its forecast and included a 25-basis-point rate hike in July, stating that the likelihood of such a move was now higher than initially anticipated.
Upcoming release of US inventory data from the American Petroleum Institute industry group, followed by official government data on Wednesday, is awaited for further market analysis. Last week, the API reported a decrease of just over a million barrels in crude stocks, and a Reuters poll indicated that US inventory likely fell during the week ending June 23.
Despite concerns regarding the mutiny by the Wagner Group of mercenaries in Russia over the weekend, the market has largely remained unperturbed, even though there is potential for a disruption in supply from one of the major global oil producers. Russian oil loadings have continued as scheduled.
Nonetheless, Bloomberg’s data suggested a significant decline in Russia’s seaborne crude oil flows to international markets last week, reaching approximately 980,000 barrels per day during the week ending June 25. Maintenance work, rather than output cuts, appeared to be the most likely cause for this decrease.
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