Oil dips on China worry ahead of U.S. retail sales, Fed minutes

Investing.com -- The oil rally is beginning to feel heavy.

Crude prices slid on Monday on persistent worries about post-pandemic growth in China and as players adjusted positioning ahead of Tuesday’s data on U.S. retail sales and Wednesday’s Federal Reserve minutes on the central bank’s July policy meeting.

In China, economic data for July mostly trailed market expectations. Among the worst readings were bank loans, which slid to a 14-year low. Consumer and producer prices also declined, and exports slid the most since February 2020. The stumbling Chinese economy and lack of any effective stimulus measures have left the yuan against the dollar, which rallied Monday, adding to the weight of commodities, particularly oil.

New York-traded West Texas Intermediate, or WTI, crude settled down 68 cents, or 0.8%, at $82.51 a barrel. The U.S. crude benchmark hit a 9-month high of $84.89 on Thursday and is up 20% over the past seven months on Saudi maneuvers to get prices up with production cuts. In Monday’s session, WTI fell to as low as $81.78.

“The low price moved below the old swing area between $82.43 and $83.44,” analyst Greg Michalowski said on the ForexLive platform. “That area was breached last week but rotated into the swing area on Friday. Today's break below is more bearish and may be a signal that the sellers are gathering against the swing area.”

London-based Brent crude settled down 60 cents, or 0.7%, at $86.21.  Like WTI, the global crude benchmark touched a new milestone on Thursday, reaching a seven-month high of $88.10. In under two months, Brent is up 18%.

U.S. retail sales for July are expected to show a pickup in demand at the start of the third quarter after a smaller-than-expected increase in June.

The Fed’s minutes, meanwhile, will reveal deliberations by its policy-makers on the Federal Open Market Committee, which led to last month’s rate hike as markets look for signals on what the central bank could decide when it meets again in September.

The Fed raised rates by 25 basis points last month and left the door open to another hike in September. The minutes will help investors gauge the appetite for further rate increases, although markets are betting on a pause in September.

The Fed minutes and other data through August will paint a broader picture for investors on what the central bank is likely to say at its annual get-together in Jackson Hole, Wyoming at the end of this month. The biggest Fed event of the year also often gives markets a sense of how the central bank would proceed with rates going forth.

The Fed raised interest rates by 5.25 percentage points since March 2022 to bring inflation from a four-decade high of 9% per year in June last year to 3% now. Its ultimate goal is not to let prices grow by more than 2% a year.

Data last week showed that while U.S. consumer and producer prices increased moderately in July, the overall trend indicated that inflationary pressures were easing.

Other data this week is expected to indicate that the manufacturing sector is still struggling - the Empire State manufacturing index is expected to fall into negative territory, while the Philly Fed manufacturing index is expected to remain in negative territory.