Oil Falls on China Outlook, Awaits Powell Statements

By Mohi Narayan and Sudarshan Varadhan

March 6 (Reuters) – Oil prices fell on Monday after China set an economic growth target for this year of around 5%, below expectations, and as investors cautiously awaited testimony from the president of US Federal Reserve Jerome Powell this week.

Brent crude futures were down 53 cents, or 0.6%, at $85.30 a barrel at 0735 GMT. U.S. West Texas Intermediate (WTI) crude futures also fell 0.6% to $79.21.

“Crude remains in a tug of war between optimism over China’s reopening and nervousness over a hawkish Fed hurting the US economy,” said Vandana Hari, founder of the oil market analysis provider. Vanda Insights.

China’s growth outlook, announced on Sunday, fell short of its gross domestic product (GDP) growth target of 5.5% last year. GDP grew only 3% last year. Sources consulted by Reuters had indicated that a range of up to 6% could be set for 2023.

Premier Li Keqiang said on Sunday that the foundations for stable growth in China needed to be solidified, insufficient demand remained a pronounced problem and the expectations of private investors and businesses were unstable.

However, analysts at investment bank UBS raised their Chinese GDP growth forecast to 5.4% for 2023 and 5.2% for 2024 from 4.9% and 4.8%, respectively.

“Economic reopening is going better than expected: COVID’s ‘second wave’ has not materialized and there have been few signs of supply disruptions,” said Tao Wang, head of economic research on COVID-19. China at UBS, in a note. Bank.

Both benchmark crude indices rose more than $1 on Friday after two sources told Reuters a report that the United Arab Emirates was considering quitting OPEC was inaccurate.

Hari said the rebound was bigger than the initial drop in news and put crude prices in “overbought territory, so it’s (not) surprising that prices are correcting lower this morning.”

At the same time, oil prices are likely to be affected by rate hikes around the world, as central banks tighten monetary policy for fear of higher inflation. Traders have started to price in rate hikes around the world, but expect them to be lower than last year.

US Federal Reserve Chairman Jerome Powell will testify before Congress on Tuesday and Wednesday, where he is likely to be asked about the need for further hikes in the world’s largest oil-consuming country.

Future rate hikes in the US will also likely depend on what the February payrolls report reveals on Friday, followed by February inflation data due next week.

Over the weekend, European Central Bank President Christine Lagarde said it was “very likely” that interest rates would rise this month to contain inflation.

(Mohi Narayan (New Delhi) and Sudarshan Varadhan (Singapore). Editing by Sonali Paul and Christian Schmollinger, edited in Spanish by José Munoz at the Gdansk Newsroom)