Oil Falters on China’s Mixed Inflation Cues, US Data Awaits

Oil prices weakened on Monday amid uncertainty over China’s economy following mixed inflation readings, while markets were cautious ahead of crucial US inflation data this week.

Brent crude oil futures for July delivery declined 0.31% to $82.53 per barrel, while the US West Texas Intermediate (WTI) crude futures expiring in July fell 0.30% to $77.61 per barrel.

Both benchmarks slightly faltered last week after US consumer sentiment took a sharp dive to a sixth-month low of 67.4 in May, compared to the final reading of 77.2 in April and as expectations for sticky inflation introduced a potential slowdown in the top oil-consuming country.

The data followed the Energy Information Administration (EIA) reporting that US gasoline stocks rose 0.9 million barrels in the week ending May 3 to 228 million barrels, and distillate inventories added 0.6 million barrels to 116.4 million barrels.

Furthermore, most traders were pricing out a geopolitical risk premium from the ongoing Israel-Hamas war, seeing that the fight has only slightly disrupted supplies.

Still, the recent price slides were also curbed by the prospect of the Organization of Petroleum Exporting Countries (OPEC) and allies leaving output cuts unchanged in June.

China’s Inflation Cues Mixed Ahead of US Inflation Data

China’s consumer inflation further improved in April, with data from the National Bureau of Statistics (NBS) released on Saturday showing the consumer price index (CPI) rising 0.3% year-over-year (YoY) last month against a 0.1% increase in March.

The surge signaled that Beijing’s policy support measures in the past several months may have aided spending.

Producer price index (PPI), on the other hand, slipped 2.5% YoY in April to ease from a 2.8% fall in the previous month. However, it was the 19th straight month the PPI has weakened, suggesting continued underperformance in the country’s factory and business segments.

Oil imports of the world’s no. 1 crude importer slowed by 5.8% in April from March’s 11.55 million barrels per day (bpd) and mainly were flat from the same period of 2023, as China’s post-pandemic recovery struggled to gather pace.

In the US, meanwhile, the country’s upcoming PPI and CPI readings have kept sentiment in oil markets weak. Consumer inflation data will be released on Tuesday, followed by producer prices report on Wednesday.

Traders will watch for any hints of cooling inflation in the world’s largest economy, which may support the case for a Federal Reserve interest rate cut.

The possibility of extending elevated interest rates in the US has laid heavy pressure on crude prices in recent months, considering higher rates may hinder economic activity and hurt oil demand.

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