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Fears of Chinese Economic Slowdown and Rising U.S. Interest Rates Threaten Oil Price Rally

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Oil prices remained subdued in Asian trade on Friday, signaling the potential end of a seven-week winning streak. Concerns about a Chinese economic slowdown and the prospect of increasing U.S. interest rates have cast shadows over the demand outlook for oil.

Crude prices experienced a slight uptick on Thursday, recovering about $1 from a two-week low. China’s central bank’s commitment to maintaining liquidity in the markets aimed at shoring up economic growth provided some support.

US Interest Rate Forecast

However, these gains were insufficient to offset larger declines in oil prices throughout the week. A series of disappointing economic indicators from China, the world’s largest oil importer, further dampened market sentiment. Additionally, a robust dollar fueled by strong U.S. economic readings and hawkish signals from the Federal Reserve added to pressure on oil markets.

Brent oil futures stabilized at $84.20 a barrel, while West Texas intermediate crude futures inched up to $80.50 a barrel. Both contracts were on track to register losses between 3.5% and 4% for the week.

The recent rally in oil prices had been supported by extended supply cuts from major producers Saudi Arabia and Russia. However, concerns about China’s economic trajectory and potential interest rate hikes in the U.S. have cast doubts on the sustainability of the upward trend.

Investors are closely watching for additional stimulus measures from China as it grapples with post-COVID economic recovery challenges. The People’s Bank of China’s decision to cut lending rates and potential actions to support the economy. Particularly in the beleaguered property sector, are critical.

Market sentiment is further affect by the strength of the dollar and the Federal Reserve’s rate outlook. Hawkish signals from the Fed’s July meeting minutes, coupled with continued strength in the labor market, have raised concerns about interest rate hikes.

While U.S. oil demand has shown stability in recent months. Apprehensions of a potential decline in fuel consumption are heightened as the summer season nears its end.

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