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

Oil prices fell Monday after disappointing data from the US and China complicated the economic outlook, prompting a shift away from riskier assets.

The international oil benchmark Brent oil fell to $92.78 a barrel, after dismal reports from the world’s two leading economies heightened concerns that a slowdown in global growth will hit industrial and consumer demand. US marker West Texas Intermediate fell to $86.82, its lowest level since early February – before Russia invaded Ukraine.

Both indicators trimmed their losses later in the day, with Brent dropping 3.1 percent at $95.10 and WTI coming in at $89.41, down 2.9 percent.

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

Analysts at Goldman Sachs said the data indicated that the recovery in growth since the April and May lockdowns, spurred by the Omicron Covid-19 variant, “stalled and even reversed somewhat in July”.

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

In an effort to boost growth, China’s central bank cut the interest rate on medium-term loans, which it provides one-year loans to the banking system, by 0.1 percentage point to 2.75 percent on Monday.

“Oil markets struggle to take a break as weak macro data continues to put downward pressure on [them]Oilytics analysts said, noting that the “scary” Chinese data came after poor consumer confidence data in Europe last week.

Traders will also closely monitor talks on reviving the Iran nuclear deal, while Tehran considers a new EU proposal to restart talks. Any progress in lifting sanctions on Iranian exports could boost crude oil markets.

“Oil prices can swing wider than a pendulum when it comes to Iran’s perpetual nuclear talks,” said Tamas Varga of PVM Oil Associates.

Data from the US added to the gloomy feeling 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 consulted by Reuters had predicted a position of 5. The unexpected slump in the Empire State meter marked the index’s second-largest monthly drop on record.

Line chart of the Empire State's general business conditions index sharply showing New York factory business contracts in August

On Wall Street, US stocks saw moderate gains after starting the session lower. The S&P 500 ended the day up 0.4 percent, while the tech-heavy Nasdaq Composite rose 0.6 percent. The broad-based S&P posted its fourth straight week of gains last week.

In bond markets, the yield on the 10-year US Treasury fell 0.05 percentage point to 2.8 percent as the price of the reference instrument rose. US government debt is typically seen as a refuge in times of economic stress.

Market participants will examine the minutes of the Federal Open Market Committee’s latest monetary policy meeting on Wednesday to find clues about the central bank’s tightening plans.

The dollar gained 0.8 percent against a basket of six leading currencies on Monday. In Europe, the regional stock index Stoxx 600 closed 0.3 percent higher. Chinese stocks fell, with the CSI 300 meters of Shanghai and Shenzhen-listed stocks closing 0.1 percent and the Hang Seng index in Hong Kong falling 0.7 percent.

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