Oil prices dipped Monday as markets are wary of further interest rate hikes by the US Federal Reserve while fretting over concerns that China's economic growth was slowing, which could dampen global fuel demand.
Brent crude for October settlement rose 0.13% to $84.37 a barrel as of 07:53 am GST Monday, while West Texas Intermediate (WTI) crude for October contracts gained 0.09% to $79.76 per barrel around the same time.
On Friday, Brent and WTI saw their second straight week of losses after Fed Chair Jerome Powell said the central bank may need to hike interest rates to combat inflation, which remains well above its 2% target.
Powell said Friday that the Fed has no intention of slowing down its efforts to curb inflation through its tightening campaign, signaling that the Fed is “prepared” to raise interest rates further “if appropriate.” The federal funds rate currently sits at a 22-year high.
Oil prices gained in early Asian trade before receding due to the decision by China’s finance ministry on Sunday to halve the stamp duty on stock trades "in order to invigorate the capital market and boost investor confidence," Reuters reported citing a ministry statement, which temporarily caused prices to rise.
"Unfortunately, after last week's modest [Chinese central bank interest] rate cut, the announcements above amount to another piecemeal measure that won't alter investor gloom towards China," said Tony Sycamore, a market analyst at IG, as quoted by Reuters.
Sycamore added that China's manufacturing purchasing managers’ index (PMI), due later this week, is expected to show more disappointing economic news for the world’s second-largest economy, as it's likely to remain in contraction territory for the fifth consecutive month.
Brent crude prices are expected to be supported around $80 per barrel in the second half of 2023, as the oil market remains in a deficit for the rest of the year before returning to a small surplus next year, Morgan Stanley said in a note last week.
The international bank said that while the output cuts authorized by the Organization of Petroleum Exporting Countries (OPEC) will have a favorable impact on oil prices in the near future, the cartel's market share could decline in the long term due to the highest spare capacity in 20 years, which could put downward pressure on prices.
Saudi Arabia has announced that it will extend its voluntary output cuts by one million barrels per day into September, with the potential of maintaining this cut beyond September and even increasing it. Russia will also reduce oil exports by 300,000 bpd in September.
OPEC member Algeria is considering extending the additional voluntary 20,000 bpd cut for August into September, Reuters reported, citing a source.
