Oil falls on lingering demand concerns in China

By Arathy Somasekhar and Trixie Yap

(Reuters) -Oil prices slipped on Tuesday on worries about a slowing Chinese economy crimping demand, though a growing consensus that the U.S. Federal Reserve will begin cutting its key interest rate as soon as September limited declines.

Brent futures fell 57 cents, or 0.67%, to $84.28 a barrel by 0630 GMT, while U.S. West Texas Intermediate (WTI) crude dropped 59 cents, or 0.72%, to $81.32.

IG market strategist Yeap Jun Rong, in an email, said the weaker run in Chinese economic data "cast some doubts on whether market participants are being overly optimistic around Chinese oil demand outlook".

The world's second-largest economy grew 4.7% in April-June, official data showed, its slowest since the first quarter of 2023 and missing a 5.1% forecast in a Reuters poll. It also slowed from the previous quarter's 5.3% expansion, hamstrung by a protracted property downturn and job insecurity.

"Its 2Q GDP and retail sales figures had surprised on the downside by a significant margin, while anticipation for stronger stimulus measures at the Third Plenum may face the risks of disappointment," Yeap added, referring to a key economic leadership meeting in Beijing this week.

In the U.S., Fed Chair Jerome Powell said on Monday the three U.S. inflation readings over the second quarter of this year "add somewhat to confidence" that the pace of price increases is returning to the central bank's target in a sustainable fashion, remarks market participants interpreted as indicating that a turn to interest rate cuts may not be far off.

Lower interest rates decrease the cost of borrowing, which can boost economic activity and oil demand.

Some analysts cautioned about being overly bullish as expected weakness in some macroeconomic data from the U.S. could still indirectly hurt oil demand in the near-term.

"Macro factors are not in favour of higher oil prices in the near term (capped below $85/barrel for WTI crude) due to the prospect of weaker U.S. retail sales for June that are due later today," said OANDA senior market analyst Kelvin Wong in an email.

(Reporting by Arathy Somasekhar; Editing by Christopher Cushing and Stephen Coates)