Oil prices fell on Monday after China set a lower-than-expected economic growth target for this year and as investors cautiously awaited testimony from U.S. Federal Reserve Chairman Jerome Powell this week.
The futures of the Brent crude They were down 53 cents, or 0.6 percent, at $85.30 a barrel at 0735 GMT. U.S. crude futures West Texas Intermediate WTI also lost 0.6 percent to $79.21.
“Crude remains locked in a tug-of-war between optimism over China’s reopening and nervousness about an aggressive Fed hurting the U.S. economy,” said Vandana Hari, founder of oil market analysis provider Vanda Insights.
China’s growth prospects, announced on Sunday, were lower than its gross domestic product (GDP) growth target of 5.5% last year. GDP grew last year by only 3%. Sources consulted by Reuters had said a range of up to 6% could be set for 2023.
Premier Li Keqiang said on Sunday that the foundations of stable growth in China needed to be consolidated, that insufficient demand remained a pronounced problem and that expectations of private investors and businesses were shaky.
However, analysts at investment bank UBS (SIX:UBSG) raised its Chinese GDP growth forecasts to 5.4% for 2023 and 5.2% for 2024, from 4.9% and 4.8%, respectively.
“The economic reopening is happening better than we previously expected: the dreaded ‘second wave’ of COVID did not materialize and there were few signs of supply disruptions,” Tao Wang, head of China economic research at UBS Investment Bank, said in a note.
Both crude benchmarks rose more than $1 on Friday after two sources told Reuters that a report that the United Arab Emirates was considering leaving OPEC was inaccurate.
Hari said the rebound was greater than the drop in the original news and put crude prices in “overbought territory, so it’s (not) surprising that prices are correcting downward this morning.”
At the same time, oil prices are likely to be hit by rate hikes around the world, as central banks tighten monetary policy on fears of rising inflation. Traders have started to take into account rate hikes around the world, but expect them to be smaller than last year.
Federal Reserve Chairman Jerome Powell will testify before Congress on Tuesday and Wednesday, where he is likely to be questioned about whether bigger hikes are needed in the world’s largest oil-consuming country.
Future U.S. rate hikes are also likely to depend on what the February payrolls report reveals on Friday, followed by February’s inflation data due next week.
Over the weekend, European Central Bank President Christine Lagarde said it was “very likely” interest rates would rise this month to contain inflation.