West Texas Intermediate (WTI) crude oil is trading around $70.20 on Tuesday, holding steady as traders await the Federal Reserve’s (Fed) interest rate decision on Wednesday. While the price remains flat, concerns over sluggish global demand growth, particularly in China, are weighing on the commodity’s upside potential for now.
Chinese November Retail Sales data came in weaker than expected, raising fears of slowing consumer spending in the world’s largest oil importer. According to the National Bureau of Statistics of China, Retail Sales grew by 3.0% year-on-year in November, well below the prior 4.8% growth and the market consensus of 4.6%. Bob Yawger, director of energy futures at Mizuho in New York, stated, “It’s just a very bearish scenario where there’s not a lot of hope for demand growth for crude oil.”
As a result, traders are expected to take a cautious approach, possibly taking profits ahead of the Fed’s decision. The market widely expects the Fed to lower interest rates by 25 basis points (bps) at its December meeting. Focus will be on the accompanying press conference and dot-plot, with any hawkish remarks from Fed officials potentially strengthening the US Dollar and putting downward pressure on USD-denominated oil prices.
On the flip side, geopolitical risks related to additional sanctions on crude producers like Russia and Iran may help limit WTI’s losses. US Treasury Secretary Janet Yellen highlighted the possibility of targeting Chinese banks and “dark fleet” tankers to curb oil revenues that fund Russia’s war in Ukraine. Furthermore, stricter sanctions on Iranian crude exports could provide some support to WTI prices.
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