Oil prices dropped on Wednesday, extending the losses from the previous session, as concerns over higher interest rates in the US and lower growth prospects in China dampened the outlook for fuel demand.
Fed’s policy meeting eyed for clues on rate hikes
Investors are waiting for the annual central bank conference in Jackson Hole, Wyoming, later this week, where Federal Reserve officials and policy makers from the European Central Bank, the Bank of England and the Bank of Japan will give their views on the global economic recovery and monetary policy.
The market is looking for hints on when the Fed will start tapering its bond-buying program and raising interest rates, which could strengthen the dollar and make oil more expensive for holders of other currencies.
Some analysts expect the Fed to announce its tapering plans as soon as September, while others think it will wait until November or December.
A stronger dollar also tends to weigh on commodity prices, as it reduces the purchasing power of emerging markets, which are key drivers of oil demand growth.
China’s growth woes add to demand uncertainty
China, the world’s second-largest economy and the biggest oil importer, is facing a slowdown in its economic activity amid a resurgence of COVID-19 cases, regulatory crackdowns on various sectors and a debt crisis at property developer Evergrande.
China’s factory output and retail sales growth slowed sharply in July, while its crude oil imports fell to a six-month low.
The country also cut its key lending rate by less than expected on Monday, disappointing investors who were hoping for more stimulus to boost growth.
China’s weak performance has raised doubts about its ability to support oil demand in the second half of the year, especially as the Delta variant of the coronavirus spreads across Asia and other regions.
OPEC+ supply cuts provide some support
On the supply side, oil prices have been supported by the ongoing output cuts by the Organization of the Petroleum Exporting Countries and its allies, a group known as OPEC+.
The group has agreed to gradually increase production by 400,000 barrels per day (bpd) each month until December, but it is still withholding about 5.8 million bpd from the market.
Saudi Arabia has also volunteered to cut an extra 1 million bpd from July through September, while Russia plans to reduce its exports by 500,000 bpd in August.
These supply curbs have helped tighten the market and offset some of the demand weakness caused by the pandemic.
US crude stocks fall for third week
Meanwhile, US crude inventories fell for the third consecutive week, according to data from the American Petroleum Institute (API) released on Tuesday.
The API reported a draw of 2.4 million barrels in the week ended Aug. 18, slightly less than the 2.9 million barrels expected by analysts in a Reuters poll.
The official data from the Energy Information Administration (EIA) is due later on Wednesday.
A decline in US crude stocks usually indicates higher demand in the world’s largest oil consumer and supports prices.
Oil prices at a glance
Brent crude, the global benchmark, dipped 17 cents, or 0.2%, to $83.86 a barrel by 0031 GMT on Wednesday, after losing about 0.5% on Tuesday.
US West Texas Intermediate (WTI) crude was at $79.56 a barrel, down 8 cents, or 0.1%, following a 0.5% drop in the previous session.