Oil slips on weak China demand fears, U.S. rate rise forecast

SINGAPORE  -Oil prices fell in Asian trade on Tuesday, extending losses seen in the previous session, as weak economic data from China and expectations of a U.S. interest rate increase weigh on the market.

Brent crude was down 0.3 percent, or 24 cents, to $79.07 a barrel by 0615 GMT, while U.S. West Texas Intermediate (WTI) crude fell 0.3 percent, or 25 cents, to $75.41 a barrel. Both benchmarks fell by more than $1 in their last session.

“The downside pressure on oil is that China’s economic recovery is not really promising, clouding the demand outlook on fuel consumption,” said Tina Teng, an analyst at CMC Markets.

China’s manufacturing activity unexpectedly fell in April, official data showed on Sunday, the first contraction since December in the manufacturing purchasing managers’ index.

China’s industrial and economic recovery from the coronavirus pandemic was expected to boost demand this year.

Despite China’s weak manufacturing data, there are positive signs of recovery based on spending during the five-day Labor Day holiday in the world’s largest oil importer, said analysts in an ANZ Research note.

“State broadcaster CCTV said that major retail and catering companies have seen sales jump 21 percent year-on-year, based on Ministry of Commerce data. A record 19.7 million railway trips were made across the country. Traffic is also expected to be 20 percent higher than in 2019, according to local media.”

Over the weekend, CCTV reported that passenger travel on the first day of the holiday surged 151.8 percent from the same day last year, while the number of air, road, waterway and railway trips rose to 56.99 million on the day.

Meanwhile, a Monday poll showed that U.S. crude oil stockpiles are expected to have fallen for a third consecutive week, providing some support to the market.

The poll was conducted ahead of reports from the American Petroleum Institute, an industry group, due at 4:30 p.m. EDT (2030 GMT) on Tuesday, and the Energy Information Administration, the statistical arm of the U.S. Department of Energy, due at 10:30 a.m. (1430 GMT) on Wednesday.

However, the U.S. Federal Reserve, which meets on Tuesday and Wednesday, is expected to increase interest rates by another 25 basis points. Interest rate increases by inflation-fighting central banks could impact oil by slowing economic growth and denting energy demand.

Banking fears have also weighed on oil in recent weeks and in what is the third major U.S. institution to fail in two months, U.S. regulators seized First Republic Bank over the weekend ahead of a deal in which JPMorgan bought most of its assets.