Oil Prices Climb as Traders Analyze China Concerns and Fed Policy

Oil prices have stabilized after a three-day turn down caused by fears about the Chinese economy and the chance of tighter US monetary policy.

After losing more than 4% this week, West Texas Intermediate was little changed above $79 per barrel. Despite leaders’ promises of support, concerns over China’s post-pandemic recovery have taken center stage. This has reduced demand for risk assets such as commodities.

According to minutes from the Federal Reserve’s July meeting, policymakers in the United States were concerned that inflation would not subside and that further interest rate increases would be required. Higher borrowing costs may reduce energy demand while supporting US dollar advances.

Oil is still trading well above the June lows after OPEC+ heavyweights Saudi Arabia and Russia limited supplies, and there have been other signs of tightening this week. According to the Energy Information Administration, US oil stocks have dropped to their lowest level since January after falling for four of the previous five weeks. “The oil market has been struggling to get away from broader market concerns following a raft of weaker-than-expected Chinese macro data this week,” said Warren Patterson, head of commodities strategy at ING Groep NV. “However, we remain bullish on oil, expecting fundamentals to tighten further as a result of ongoing supply cuts from OPEC+.”