Oil Dips Just a Little as COVID-Fearing China Keeps Rates Loose vs Fed Choke

By Barani Krishnan

Investing.com -- They may be big on COVID but they are proving to be super loose with rates — something the Federal Reserve isn’t. And that’s helping minimize the losses in crude as top oil importer China continues being super sensitive to new coronavirus infections.

China's central bank rolled over on Monday maturing medium-term policy loans while keeping its key interest rate unchanged for a second month, in a signal that loose monetary policy would be maintained. 

Next week, China will release third-quarter GDP numbers and September trade data. Economists say Chinese quarterly growth possibly rebounded, although annual growth could be its worst in almost half a century.

The Chinese economy is at a crossroads after President Xi Jinping vowed at the weekend to stick to a zero-COVID policy, despite widespread damage to growth. Xi, however, said Beijing will ramp up spending and stimulus to help shore up growth.

The Fed, on the contrary, is due to announce its sixth rate hike of the year on Nov. 2 when its policy-making Federal Open Market Committee, or FOMC, holds its monthly meeting. 

Since March, the U.S. central bank has raised rates by 300 basis points, from an original 25 points in February. It intends to add another 125 basis points to rates before the year-end, with economists expecting further hikes in 2023.

In Monday’s session, New York-traded West Texas Intermediate crude settled down 15 cents, or 0.2%, at $85.46 per barrel. 

Last week, WTI lost 7%. The U.S. crude benchmark rose 17% over two prior weeks, after an output cut of 2 million barrels per day for November onwards, announced by the OPEC+ oil producing alliance. Prior to that, WTI fell 12.5% in September and 24% in the third quarter.

London-traded Brent oil was down 20 cents, or 0.2%, at $91.44 by 14:35 ET (18:35 GMT). 

Like WTI, Brent also lost  7% last week, after a 13% rise over two prior weeks. The global crude benchmark was down 11% in September and dropped 22% in the third quarter.

“It's been another turbulent few weeks in oil markets from global growth concerns to super-sized OPEC+ output cuts and it seems they're yet to fully settle down,” said Craig Erlam, analyst at online trading platform OANDA. 

“Brent has seen lows of $82 and highs of $98, so perhaps what we're now seeing is it finding its feet somewhere in the middle. Whether that will satisfy the oil alliance, only time will tell, but there will be some relief that it's not back in triple figures already, even if that is a result of the ever-worsening economic outlook.”