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Oil prices were lower on Tuesday as weak demand from China dampened sentiments. Investors were also cautiously waiting for the outcome of the US Federal Reserve’s policy meeting, which starts on Tuesday. Refinery data from China showed activity declined last month, which weighed on prices on Tuesday. At the time of writing, the price of West Texas Intermediate crude oil on the New York Mercantile Exchange was $70.26 per barrel, down 0.7%. Brent crude on the Intercontinental Exchange was $73.87 per barrel, down 0.1% from the previous close. After posting sharp gains last week, both benchmarks retreated on Monday as investors resorted to booking profits.
Chinese refinery activity declines
The latest industrial output data from China showed that refiners reduced activity in November. Crude oil processed last month fell to the lowest level in five months at 14.3 million barrels per day as some processors shut plants for seasonal maintenance. Five state-owned plants were shut for seasonal maintenance last month as per the Mysteel OilChem data, quoted by ING Group.This includes Sinopec Fujian Refining & Chemical Co., which has an annual refining capacity of 12 million tons. Meanwhile, domestic demand was also weaker, falling by around 2.1% year-on-year to a little more than 14 million barrels per day. Cumulative apparent demand fell by 3.3% year-on-year to 14 million barrels per day over the first 11 months of the year. Also, China’s retail sales growth declined last month, while home prices fell year-on-year in October. Poor economic data on top of weakening domestic demand for the fuel painted a bleak picture for oil consumption in the Asian giant. David Morrison, senior market analyst at Trade Nation, said:
Perhaps the biggest question is whether Chinese imports will go to refineries and then out to meet growing demand, or will simply go into storage as China builds up reserves at attractive prices? If it’s the latter, then it’s unlikely to trigger a significant rally in crude.
China is the world’s largest crude importer.
Oil prices: traders eye Fed meeting
The market will also wait for the policy decision of the US Fed on Wednesday. According to the CME FedWatch tool, traders have priced in a 95.4% probability of the US central bank cutting rates by 25 basis points. The central bank had already cut rates twice earlier this year; one in September by 50 bps, and the other one in November, by 25 bps. Next year, analysts and traders expect the US Fed to cut interest rates twice. However, a resilient labor market and sticky inflation in the US have clouded the outlook on the bank’s rate-cutting cycle. On Wednesday, the commodity market will look for any cues about the next steps of the US Fed, going into 2025. Lower interest rates reduce the borrowing costs for the public, while also boosting demand from industries. This is also likely to translate into more demand for commodities such as crude oil. Morrison said:
Crude oil has been under near-relentless downside pressure since September last year. But as far as the downside is concerned, front-month WTI seems to have found a floor around $65, or more recently, $66.50.
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