Crude oil retreats after weak China data; U.S. retail sales rise

Investing.com -- Crude oil prices fell Tuesday as disappointing economic data raised further concerns about China’s economic recovery, even following Beijing’s unexpected interest rate cut.

By 09:40 ET (13.40 GMT), the U.S. crude futures traded 1.4% lower at $81.38 a barrel, while the Brent contract dropped 1% to $85.34 per barrel.

China’s rate cut fails to boost sentiment

China's industrial output and retail sales data, released late Monday, showed that growth in the globe’s second-largest economy, and major oil importer, slowed further last month, and added a broad array of data highlighting intensifying pressure on the economy, mainly from the property sector.

The People’s Bank of China responded to these signs of a slowing recovery from its COVID hit by marginally cutting key interest rates on Tuesday.

However, the decision to cut key interest rates for the second time in three months has done little to improve the wider sentiment given China’s central bank reduced its one-year medium-term lending facility by just 15 basis points to 2.50% from 2.65%.

U.S. retail sales soar

By contrast, U.S. retail sales jumped 0.7% last month, increasing more than expected in July, suggesting the U.S. economy continued to expand early in the third quarter and keeping a recession at bay.

Additionally, data for June was revised higher to show sales rising 0.3% instead of the previously reported 0.2%.

The Federal Reserve raised rates by 25 basis points last month and left the door open to another hike in September. While the U.S. central bank is widely expected to pause next month, these strong numbers can only add to the chances of policymakers calling for an additional interest rate increase, potentially hitting economic activity and thus the demand for crude.

Dollar strength hitting crude

These indications of relative U.S. economic strength are also boosting the U.S. dollar, which recorded a 1-1/2-month high late Monday.

This is weighing on oil markets, as a stronger dollar makes commodities priced in the greenback, like crude, more expensive, likely hitting demand among international buyers.

Crude remains near recent highs

All that said, the oil markets remain near recent highs as supply cuts by Saudi Arabia and Russia, part of the OPEC+ group comprising the Organization of the Petroleum Exporting Countries and allies, had helped galvanize a rally in prices over the past seven weeks.

New York-traded West Texas Intermediate, or WTI, crude hit a 9-month high on Thursday and is up 20% over the past seven weeks, while Brent is up 18% in under two months.

“This local correction is not surprising – occasionally, investors return to minor sales. The fundamental background remains favorable for buyers who find a foothold in the supply shortage in the second half of 2023,” said Andrey Goilov, a trader at RoboForex.

“Meanwhile, global crude oil demand calculated by the IEA set a record of 103 million barrels daily in June. In August, it might reach a new peak.”

Attention will turn to the release of U.S. inventory data from the industry group American Petroleum Institute later in the session, as a precursor to official inventory data from the U.S. Energy Information Administration on Wednesday.

The API reported a build of just over 4 million barrels in U.S. crude stocks last week.