Oil prices down on weak Chinese economic signals

By Sibel Morrow

Oil prices continued their decline on Wednesday as China posted sluggish economic data for two consecutive days, signaling demand weakness during the country’s peak travel season.

International benchmark Brent crude traded at $86.05 per barrel at 10.25 a.m. local time (0725 GMT), a 0.14% loss from the closing price on Tuesday of $86.17 per barrel.

The American benchmark West Texas Intermediate (WTI) traded at the same time at $82.51 per barrel, down 0.49% from the session close of $82.92 per barrel on Tuesday.

Evidence of slowing economic growth and weak economic indicators from China, the world's largest oil importer, exacerbated concerns over global oil consumption.

The possibility of deflation intensified after data showed a continual fall in China's production prices with unchanged consumer prices. The Producer Price Index (PPI) declined by 4.4% and the Consumer Price Index (CPI) decreased by 0.3% in July compared to the same month last year, according to China's National Bureau of Statistics.

Other negative results showed that China's crude oil imports fell 18.8% month on month in July to roughly 10.29 million barrels per day (bpd).

These adverse economic data pushed down oil prices, implying a drop in oil consumption in the world's second-largest oil-consuming country during the peak travel season.

Further exerting downward price pressure and increasing concerns about the US banking sector, the global credit rating agency Moody's downgraded 10 small and medium-sized US banks and reviewed the credit ratings of six major US banks, including the Bank of New York Mellon Corporation, State Street and Northern Trust, for a potential downgrade.

Investors focused on the statements of US Federal Reserve (Fed) officials. Philadelphia Fed President Patrick Harker stated that the Fed does not want to go too far in monetary tightening and that interest rates will likely begin to fall next year.

Meanwhile, the American Petroleum Institute's estimate of US crude oil stockpiles, which rose by nearly 4 million barrels last week, accelerated the price fall.

The US Energy Information Administration (EIA) will release official oil inventory data later on Wednesday. The decline in oil prices will likely continue in the event of a rise in stockpiles.