[WORLD] Oil prices dipped on Monday, pressured by Moody's downgrade of the U.S. sovereign credit rating and official data revealing slower growth in China's industrial output and retail sales. These developments raised concerns about the economic outlook for both the U.S. and China, the world’s two largest economies and oil consumers, just a week after an agreement between Beijing and Washington to reduce most tariffs on each other’s goods boosted oil prices.
“The weaker-than-expected Chinese data is not supportive of crude oil prices, although I would describe the setback as modest,” said Giovanni Staunovo, an analyst at UBS.
The downgrade of the U.S. credit rating by Moody's has shaken global financial markets, increasing fears of potential economic slowdowns. The downgrade points to growing fiscal risks and a more challenging economic environment, potentially leading to lower demand for oil. This concern is further intensified by the recent Chinese data, suggesting that the world’s largest oil importer is experiencing a slowdown in industrial activity.
By 1255 GMT, Brent crude futures had fallen by 14 cents, or 0.2%, to $65.27 per barrel, while U.S. West Texas Intermediate crude slipped by 5 cents, or 0.1%, to $62.45. The June WTI contract is set to expire on Tuesday. Both contracts saw gains of over 1% last week.
Market analysts are closely monitoring how these economic signals will affect oil demand. A potential slowdown in the U.S. economy coupled with decelerating industrial growth in China could lead to a significant drop in oil consumption, a troubling prospect for oil producers who had been optimistic about a demand recovery following the easing of trade tensions between the two countries.
Further weighing on the market were comments from U.S. Treasury Secretary Scott Bessent, who stated that President Donald Trump would impose tariffs at the rate previously threatened on trading partners that do not negotiate in "good faith."
“Today’s weakness is simply a continuation of crude’s wild ride, with the latest movement driven by the Moody’s downgrade and, not least, Scott Bessent’s warning,” said Ole Hansen, a strategist at Saxo Bank.
The potential for new tariffs adds another layer of uncertainty to the oil market. While progress has been made in reducing trade barriers between the U.S. and China, the possibility of renewed trade tensions could disrupt economic recovery efforts and dampen oil demand. This scenario underscores the delicate balance between economic growth and trade policies, key factors that influence oil prices.
Official Chinese data released on Monday revealed a slowdown in industrial output growth for April, although the results still exceeded economists’ expectations.
Investors are also keeping a close watch on the Iran-U.S. nuclear talks, with uncertainty surrounding the outcome helping to limit losses in oil prices. U.S. special envoy Steve Witkoff stated on Sunday that any deal must include a provision barring uranium enrichment, a comment that was quickly criticized by Tehran.
“The U.S.-Iran nuclear negotiations are not straightforward and could take many months,” said John Evans of oil broker PVM.
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