Investing.com — Oil prices slipped lower Monday, continuing the previous week’s selloff amid concerns about the economic health of top importer China after the country unexpectedly lowered borrowing costs.
At 08:45 ET (12:45 GMT), Brent oil futures fell 0.9% to $77.97 a barrel, while West Texas Intermediate crude futures dropped 0.8% to $81.97 a barrel.
China cuts interest rates to boost economy
China, the world’s largest oil importer, unexpectedly lowered its benchmark loan prime rates earlier Monday, seeking to shore up slowing economic growth.
The cut comes just a week after data showed the Chinese economy grew less than expected in the second quarter, raising concerns over a potential slowdown in the country’s appetite for crude.
Beijing has vowed to unlock more stimulus measures to help shore up growth, with Monday’s cuts coming as part of these promises. But China’s LPR is already at record lows, as the country loosened monetary policy drastically over the past two years to help support growth.
Still, the prospect of increased liquidity in the Chinese economy bodes well for some near-term growth – a trend that could benefit oil demand in the country over time.
Oil nurses steep losses amid Israel-Hamas ceasefire chatter
Both contracts were nursing steep losses from last week, having lost over 3% each amid renewed speculation over an Israel-Hamas ceasefire.
The reports saw traders attach a smaller risk premium to oil prices, especially on the prospect of fewer supply disruptions in the Middle East.
U.S. officials said that Israel and Hamas were close to brokering a deal which could see some stability in the Gaza strip, and also reduce tensions between Israel and other countries in the Middle East.
Biden drops reelection bid, rate cuts in focus
On the U.S. political front, markets were also digesting President Joe Biden’s decision to no longer seek reelection. Biden endorsed Vice President Kamala Harris, who is now favorite to run against Republican candidate Donald Trump.
CBS polls data from last week showed Trump polling better against both Biden and Harris. The former president has promised to increase U.S. oil production if he wins a second term.
Plans for U.S. interest rate cuts were also in focus, as soft inflation data and dovish signals from the Federal Reserve saw markets positioning for a September rate cut.
Oil market in surplus next year – Morgan Stanley
The crude oil market is currently tight but next year will likely be in surplus, with Brent prices declining into the mid-to-high $70s range, Morgan Stanley said.
The tightness will hold for most of the third quarter, the bank said in a note dated July 19, but equilibrium will return by the fourth quarter, “when seasonal demand tailwinds abate and both OPEC and non-OPEC supply return to growth.”
Morgan Stanley said it expects OPEC and non-OPEC supply to grow by about 2.5 million barrels per day in 2025, well ahead of demand growth.
Refinery runs are set to reach a peak in August this year, and unlikely to return to that level until July 2025, it said.
(Ambar Warrick contributed to this article.)
