Oil Prices Jump After China Rate Cuts

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Oil Prices Jump After China Rate Cuts

Oil Prices Jump 0.8% After China Rate Cuts

During the first trading day of the week, oil prices jumped higher after China announced rate cuts. Considering China's position as among the top crude importers in the world, it makes sense for the crude oil market to recover.

As a result of China's central bank move, the US crude futures gained 0.8% upside and closed the day at $81.27/barrel. Similarly, the Brent contract also jumped by 0.8% and was last seen trading at $85.46.

10 BPS Rate Cut Announced By China

The highlight behind this development is most definitely the PBoC decision to introduce a 10 bps cut to its 1-year loans. As a result, the interest rate now stands around 3.45% and will help fuel the Chinese economy.

For the most part, the PBoC rate cut was below the market expectations. Similarly, the 5-year rate was also left unchanged which suggests China is fully determined to support its economy & to fuel the post-COVID recovery. That's why the PBoC introduced rate cuts for both short as well as medium-term loans in the country.

As for the last week's price action in oil, it all boils down to the worries that the Chinese economy may fail to produce a strong recovery. That's why the oil prices turned lower from their 7-week highs and even closed the last week at a 2% loss.

Despite all of this, oil prices are still trading at a 5% upside when compared with the last month. At that time, Saudi Arabia and a few other countries announced output cuts.

Looking ahead, the fate of the oil appears to be directly tied to how China manages to prop up its economy. For now, the PBoC has made small changes to its short & medium-term lending rates but that might not be enough to spur growth in the economy.

That's why many experts believe that we will see more rate cuts coming out of China for the rest of 2023. As usual, these rate cuts will be beneficial for oil prices.

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