- Oil prices plunge further amid growing concerns over China’s economic outlook.
- The PBoC surprisingly cut its prime lending rate by 10 basis points.
- Kamala Harris’ nomination as Democratic leader has increased political uncertainty in the US.
West Texas Intermediate (WTI) futures on NYMEX extend their slide below $78.00 in the American session on Monday. Oil prices weaken as an unexpected decision by the People’s Bank of China (PBoC) to cut its benchmark rates has signaled concerns about China’s economic outlook. China is the world’s largest oil importer and uncertainty about its economic outlook is a headwind for oil prices.
The PBoC cut its one-year and five-year lending prime rate (LPR) by 10 basis points to 3.35% and 3.85%, respectively. The PBoC’s rate-cutting move is expected to be on the back of a weaker-than-expected second-quarter gross domestic product (GDP) growth rate. The data showed the economy grew 0.7%, slower than estimates of 1.1% and the previous release of 1.5%.
Aside from growing demand concerns, easing fears that the oil market remains tight have also weighed heavily on the oil price. A note from Morgan Stanley showed that it expects 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, political uncertainty in the United States (US) has also weighed on the oil price. According to market speculation, Republicans led by Donald Trump are expected to win the presidential election. Trump has promised to increase US oil production if he emerges victorious.
The Dollar Index (DXY), which tracks the value of the greenback against six major currencies, is down as US Vice President Kamala Harris appears as the Democratic nominee.
Looking ahead, oil prices will be influenced by preliminary S&P Global manufacturing PMI data from several countries, which will indicate global demand prospects.
Brent Crude 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” due to its high gravity and low sulfur content, making it easy to refine into gasoline and other high-value products. Brent crude oil serves as a benchmark price for approximately two-thirds of the world’s internationally traded oil supplies. Its popularity is based on its availability and stability: the North Sea region has a well-established infrastructure for oil production and transportation, ensuring a reliable and steady supply.
Like all assets, supply and demand are the key drivers of the Brent crude oil price. As such, global growth can be a driver of higher demand and vice versa for weak global growth. Political instability, wars and sanctions can disrupt supply and affect prices. Decisions by OPEC, a group of major oil producing countries, are another key driver of price. The value of the US Dollar influences the Brent crude oil price as oil is predominantly traded in US Dollars, so a weaker US Dollar can make oil more affordable and vice versa.
Weekly oil inventory reports released 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 may indicate an increase in demand, which pushes up the price of oil. Higher inventories may reflect an increase in supply, which pushes down prices. The API report is released every Tuesday, and the EIA report the following day. Their results are usually similar, 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 that collectively decide production quotas for member countries at semi-annual meetings. Their decisions often affect Brent crude oil prices. When OPEC decides to reduce quotas, it can restrict supply, driving up oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten additional non-OPEC members, the most notable of which is Russia.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
