• Wed. May 22nd, 2024

Over 2% WTI Falls Due to China’s Economic Downturn and Surprise PBoC Rate Reduction

Leon Kramer

ByLeon Kramer

Aug 18, 2023

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  • China’s central bank has recently implemented significant reductions in its key lending rates as a direct response to decelerating the nation’s economic recovery. This development has subsequently exerted a discernible influence on the global outlook for oil demand.
  • The supply cuts implemented by Saudi Arabia and Russia within the framework of OPEC+ have offered only modest assistance, as the West Texas Intermediate (WTI) crude oil price has declined from its year-to-date peak.
  • Barclay’s has recently revised China’s GDP forecast downward, indicating a less optimistic outlook. On a separate note, there is a slight respite for WTI as Chinese refinery throughput shows signs of improvement.

Western Texas Intermediate (WTI), the benchmark for crude oil in the United States, has experienced a decline exceeding 2%. This decline can be attributed to the release of economic data from China, which indicates a deceleration in the ongoing recovery process. Additionally, the unexpected decision by the People’s Bank of China (PBoC) to reduce key interest rates is aimed at stimulating the economy in response to the adverse effects of the Covid-19 pandemic. The West Texas Intermediate (WTI) crude oil is currently being traded at a value of $80.49 per barrel, reflecting a decrease of 2.35% in its price.

China’s Weak Retail Sales and Industrial Production Figures and PBoC Rate Changes Impact on Crude

The most recent set of economic indicators from China has revealed that Retail Sales figures fell below expectations, while Industrial Production figures have left market participants unsatisfied. As a result, the People’s Bank of China (PBoC) has taken action in response. The People’s Bank of China has implemented a reduction of ten basis points in its 7-day lending rates, bringing it down to 2.80%. The similar modification was made to the overnight Standing Facility (SLF) rate, which is currently at 2.65% after having previously been at a different value.

The execution of supply reductions by Saudi Arabia and Russia, both of which are members of the Organization of Petroleum Exporting Countries and its allies (OPEC+), has played a significant part in contributing to the continuation of the rise in the price of oil. OPEC+ countries are responsible for almost 40% of the world’s oil production.

The Organization of the Petroleum Exporting Countries and its allies is abbreviated as “OPEC+,” and this is the meaning behind the abbreviation. As a direct consequence of this, prices have reversed course from the highs they reached earlier this year.

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The investment community has expressed apprehension regarding China’s ability to achieve its 5% growth target for the year, which is expected to exert downward pressure on WTI prices. On Tuesday, Barclays revised its GDP forecast for China to 4.5%, attributing this adjustment to the persistent deterioration observed in the housing market.

On the contrary, a technical support level mitigated the decline in WTI. At the same time, China’s refinery activity exhibited a notable increase of 17.4% in July compared to the corresponding period of the previous year. The attention of WTI traders has now turned toward the inventory levels of crude oil in the United States.

Technical Outlook

The West Texas Intermediate (WTI) experienced a reversal in its trajectory, subsequently declining toward the 20-day Exponential Moving Average (EMA) for $80.47 per barrel. This particular level is regarded as the initial support, and a breach of this level may facilitate a further descent of WTI below the $80.00 mark. In the event that a breach takes place, it is projected that the daily low from August 3 of $78.74 will be revealed, which will be followed by the 200-day EMA located at $77.89.

On the contrary, if WTI maintains its position above the threshold of $80.00, this would yield favorable outcomes for prospective purchasers, potentially leading to a re-examination of the year-to-date (YTD) pinnacle of $84.85. However, it is imperative to note that before such an occurrence, it must surpass the daily peak of $83.49 observed on April 23.

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Leon Kramer

Leon Kramer

Leon Kramer, a renowned financial author, enlightens Main Forex News readers with his deep understanding of currency markets. His years in global finance, combined with an intuitive grasp of trends, delivers insightful, up-to-the-minute foreign exchange analysis.

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