Oil prices fell on mixed US rate cues weigh; China data supports

© Reuters.

Investing.com– Oil prices fell Thursday, cutting short a recent rally as traders awaited more clues from Federal Reserve Chair Jerome Powell about future monetary policy.

By 09:05 ET (14.05 GMT), the U.S. crude futures traded 0.7% lower at $78.58 a barrel and the Brent contract dropped 0.6% to $82.49 a barrel.

Powell to speak once more

Powell is set to testify in Congress again later Thursday, the second day of his two-day testimony this time to the Senate.

Assurances by Powell of the likelihood of interest rate cuts later this year had boosted oil prices on Wednesday, but comments from his colleague, Minneapolis Fed chief Neel Kashkari, tempered this optimism.

Kashkari said that he did not expect more than two, or even one rate cut in 2024, citing concerns over sticky inflation. His comments echoed similar warnings by several other Fed officials- that sticky interest rates will keep the central bank from cutting rates early.

Powell also reiterated concerns over sticky inflation during his testimony on Wednesday, stating that the central bank needed more convincing that inflation will meet its 2% annual target.

Data released earlier Thursday showed that the number of Americans filing new claims for unemployment benefits was unchanged last week as the labor market continued to gradually ease.

Additionally, U.S. layoff announcements rose 3% last month to the highest level in 11 months as automation-related restructuring continues to take a toll, a report released on Thursday said.

Focus now turns to nonfarm payrolls data for February, due Friday, for more cues on the world’s largest economy.

China trade data offers support

The crude market had received a boost earlier Thursday after China’s trade data in the January-February period beat forecasts, suggesting global trade is turning a corner in an encouraging signal for policymakers as they try to shore up a stuttering economic recovery.

China posted a 5.1% rise in imports in the first two months of 2024 from a year earlier to about 10.74 million barrels per day, customs data showed on Thursday, as crude purchases ramped up to meet fuel sales during the Lunar New Year holiday.

The data comes just days after Beijing set a largely underwhelming economic growth target for 2024, at 5% – the same as 2023.

This saw concerns over Chinese demand creep back into markets, as the Chinese government also provided scant cues on its plans for more stimulus measures to support economic growth.

US inventories add to positive supply signals

Also providing support was the news U.S. inventory data showed a smaller-than-expected build in the week to March 1, as more refiners restarted from an extended winter break. 

Gasoline and distillates inventories also saw outsized draws, furthering the notion that supplies in the world’s largest fuel consumer were tightening. 

Signs of smaller U.S. supplies added to optimism over tighter global oil markets in 2024, after the Organization of Petroleum Exporting Countries and allies said it will commit to its current supply reductions until end-June. 

Signs of an extended conflict in the Middle East also fed into bets on supply disruptions in the region, especially amid lagging ceasefire talks between Israel and Hamas.

“We still expect Brent oil prices to edge up near the top of the $70-90 range this summer driven by a modest deficit, and reach an $87/bbl peak in July,” said analysts at Goldman Sachs, in a note.

(Ambar Warrick contributed to his article.)