Oil sags on soft Chinese spending, investor pause before US Fed rate move

OIL futures slipped from the highest levels in several weeks on Monday on weakness in consumer spending in China, the world’s largest oil importer, and as investors paused buying ahead of the US Federal Reserve’s interest rate decision.

Brent crude futures settled at US$73.91 a barrel, down 58 cents, or 0.8 per cent lower, after settling on Friday at their highest since Nov 22.

US West Texas Intermediate crude settled at US$70.71 a barrel, shedding 58 cents, and also down 0.8 per cent the session after it registered its highest close since Nov 7.

Last week, oil benefited from the expectation that supply would tighten with additional sanctions on crude producers Russia and Iran, while possible lower interest rates in the US and Europe would spur demand.

“We feel that last week’s events have been appropriately priced and that this week will be bringing fewer items capable of supporting oil prices,” said Jim Ritterbusch of consultancy Ritterbusch and Associates in Florida.

Chinese retail sales were slower than expected, keeping pressure on Beijing to ramp up stimulus for a fragile economy facing US trade tariffs under a second Trump administration.

“It’s just a very bearish scenario where there’s not a lot hope of demand growth for crude oil,” said Bob Yawger, director of energy futures at Mizuho in New York.

The Chinese outlook contributed the decision by oil producer group Opec+ to postpone plans for higher output until April.

“Whatever stimulus is being deployed, consumers are not buying into it; and without a serious sea-change in personal spending behaviour, China’s economic fortunes will be stunted,” said John Evans at oil broker PVM.

Traders also took profits while awaiting the US Central Bank’s decision on interest rates this week.

IG market analyst Tony Sycamore said that light profit-taking was to be expected after prices jumped more than 6 per cent last week.

He noted that many banks and funds are likely to have closed their books given reduced appetite for positions during the holiday season.

The Fed is expected to cut interest rates by a quarter of a percentage point at its Dec. 17-18 meeting, which will also provide an updated look at how much further Fed officials think they will reduce rates in 2025 and perhaps into 2026.

Lower interest rates can stimulate economic growth and increase oil demand.

Oil prices were further pressured by the US dollar, which briefly hovered close to a three-week high versus other major currencies, ahead of the week of central bank meetings.

The US dollar and commodities like crude oil tend to trade inversely.

Investors were also looking to US oil inventory reports coming up this week for guidance.

US crude oil and distillate inventories were expected to have fallen last week, while petrol stocks likely rose, a preliminary Reuters poll showed ahead of a report from the American Petroleum Institute at 4.30 pm EST (2130 GMT) on Tuesday and one from the Energy Information Administration at 10.30 am EST (1530 GMT) on Wednesday

Four analysts polled by Reuters estimated on average that crude inventories fell by about 1.9 million barrels in the week to Dec 13.

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