Oil prices were down to their lowest levels in three weeks on Thursday after China’s services sector underperformed in October, signaling further pressures on the top crude importer, while the demand outlook was weakened by the potential for higher interest rates in the US.
Brent crude futures slipped 0.5% to $95.59 per barrel after reaching $96 in the previous session, while the West Texas Intermediate (WTI) crude futures lost 0.7% to $89.31 per barrel.
Oil Gains Limited by China Demand and Fed Rates
Weaknesses in the two contracts came as China’s services activity contracted for the second month in October, pointing to more challenges for the world’s second-largest economy as it works on keeping the spread of COVID-19 in check.
A private survey data showed that the Caixin/S&P Global services purchasing managers’ index (PMI) declined to 48.4 last month from 49.3 in September, with COVID-related curbs weighing on businesses and consumption to beat the economic recovery in the past quarter.
Reports about Beijing possibly considering easing its strict zero-COVID policy slightly lifted sentiment in China this week, but with the government denying making such a move immediately changed it.
Sluggish fuel demand in China has pressured oil prices this year as COVID-19 lockdowns held back the country’s economic activity. Chinese crude imports have gradually dropped this year, and the country is adding 15 million tons to its 2022 export quota to counter lower local demand.
Brent and WTI crude futures posted gains on Wednesday after the Energy Information Administration (EIA) reported a significant 3.115-million-barrel slide in US oil inventories.
However, the surge was offset by the Federal Reserve’s fourth consecutive three-quarter point hike. The central bank on the prior day raised interest rates by 75 basis points (bps) to 3.75%-4%, the highest since January 2008.
Furthermore, Fed Chair Jerome Powell warned that the rate could rise further than expected because of high inflation.
Oil demand has been stable due to a strong performance in the world’s largest economy, although this also allows the central bank to continue its rate hikes.
