Weak Economic Data From China and Germany Pushes Oil Prices Down

Image Credit: Reuters

Oil prices dipped roughly 1% to a one-week low on Tuesday due to concerns about demand following weak economic data from Germany and China. Meanwhile, investors remained cautious ahead of the U.S. Federal Reserve's decision on interest rates.

Brent crude settled at $73.19 per barrel, down 72 cents (1%), while U.S. West Texas Intermediate (WTI) crude dropped 63 cents (0.9%) to close at $70.08 per barrel. This marked Brent’s lowest close since December 10 and narrowed the Brent-WTI premium to $3.54 per barrel, the smallest gap in 12 weeks based on February contracts. Analysts noted that when Brent's premium over WTI drops below $4 per barrel, it becomes less economically viable for energy companies to ship U.S. crude overseas, potentially reducing U.S. exports.

In China, the world’s second-largest economy, industrial output growth marginally improved in November. However, disappointing retail sales kept pressure on policymakers to implement consumer-focused stimulus measures, particularly with additional U.S. trade tariffs expected under President-elect Donald Trump’s upcoming administration.

In Germany, business confidence dropped more than anticipated in December, according to a survey by the Ifo Institute. Pessimism about the months ahead, coupled with an industrial slowdown, dampened sentiment in Europe’s largest economy. ING analysts remarked that the disappointing Ifo index capped off a second consecutive year of economic stagnation.

Meanwhile, in the U.S., retail sales outpaced expectations in November, driven by increased vehicle and online purchases. This report, however, did not affect projections that the Federal Reserve would reduce interest rates on Wednesday, marking the third cut since the central bank began easing its monetary policy. Investors will focus on the Fed’s forecasts for hints about its 2025 outlook, as persistent inflation and resilient economic indicators continue to shape expectations.

After aggressively raising interest rates in 2022 and 2023 to combat inflation, the Fed began cutting rates in September. Lower rates can stimulate economic growth and potentially increase oil demand by reducing borrowing costs.

Oil Supplies and Inventories

In the U.S., oil storage data from the American Petroleum Institute was due Tuesday, with further details from the U.S. Energy Information Administration expected Wednesday. Analysts estimate that U.S. energy firms withdrew about 1.6 million barrels of crude from storage for the week ending December 13. If confirmed, this would mark the first four-week streak of inventory declines since August, compared to a 2.9-million-barrel increase in the same period last year and a five-year average decline of 2.4 million barrels.

In Kazakhstan, an OPEC+ member, oil and gas condensate production in 2024 is forecasted at 87.8 million metric tons, slightly below the previous projection of over 88 million tons (1.76 million barrels per day), according to Energy Minister Almasadam Satkaliyev.

The European Union adopted its 15th sanctions package against Russia over its invasion of Ukraine, including stricter measures on Chinese entities and Russian vessels within its so-called shadow fleet. Similarly, the UK imposed sanctions on ships suspected of transporting illicit Russian oil.

OPEC+, comprising the Organization of the Petroleum Exporting Countries and allies like Kazakhstan and Russia, continues to implement production cuts to stabilize oil prices.

 

 

 

 

 

 

 

 

 

 

Paraphrasing text from "Reuters" all rights reserved by the original author.