By Scott DiSavino
NEW YORK (Reuters) -Oil futures fell about 2% in choppy trading on Tuesday on forecasts for slower growth of oil demand in China, the world’s second-biggest oil consumer, and disappointment with the size of cuts in China’s key lending rates.
Brent futures for August delivery fell $1.11, or 1.5%, to $74.98 a barrel by 11:28 a.m. EDT (1528 GMT). U.S. West Texas Intermediate (WTI) crude for July delivery fell $1.66, or 2.3%, to $70.12 on its last day as the U.S. front-month contract.
The more active WTI contract for August delivery, which will soon be the U.S. front-month, was down about 2.2% at $70.31 a barrel.
“Oil locked in on anything and everything that has to do with China. This week, energy traders are seeing oil weakness emerge on disappointing stimulus efforts,” said Edward Moya, senior market analyst at data and analytics firm OANDA.
China cut its benchmark loan prime rates (LPR) for the first time in 10 months, with a smaller-than-expected 10-basis-point reduction in the five-year LPR.
The rate reduction followed recent economic data showing China’s retail and factory sectors were struggling to sustain momentum from earlier this year.
“Oil traders may need to see a materialised strong economic rebound in China to improve their outlook on oil demand,” said Tina Teng at CMC Markets in Auckland.
An expert at China National Petroleum’s (CNPC) research arm said China’s crude demand will grow less than previously expected as strong interest for electric vehicles weighs on gasoline use.
China’s fuel oil imports dipped in May after hitting a decade high in April, while exports of low-sulphur marine fuels rose, General Administration of Customs data showed.
The Chinese government met last week to discuss measures to spur economic growth and several major banks cut their 2023 economic growth forecasts for China amid fears that its post-COVID recovery is faltering.
Crude prices also followed U.S. stock indexes lower as hawkish remarks from U.S. Federal Reserve (Fed) officials last week kept investors jittery as they returned after a long U.S. holiday weekend, while the smaller-than-expected rate cut in China further dented sentiment.
Richmond Fed President Thomas Barkin said he was “comfortable” with further rate increases given that inflation was still not on the path back to 2%.
Higher interest rates ultimately increase borrowing costs for consumers, which could reduce oil demand by slowing economic growth.
Also weighing on crude prices was a strengthening of the U.S. dollar versus a basket of other currencies on data showing U.S. housing starts surged.
A stronger dollar makes crude more expensive for holders of other currencies, which can reduce oil demand.
On the supply side, Iran’s crude exports and oil output have hit new highs this year despite U.S. sanctions.
Russia is also set to increase seaborne diesel and gasoil exports this month, outweighing cuts by the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia itself.
(Reporting by Scott DiSavino in New YorkAdditional reporting by Noah Browning in London, Katya Golubkova in Tokyo and Andrew Hayley in BeijingEditing by David Goodman and Matthew Lewis)