Oil prices showed further drop on Wednesday, confirming the bearish pressure on the market, while previous recovery demand hints related to China mostly seem to be obsolete.
The largest Asian economy and even world’s No. 1, challenging the United States in absolute numbers, seems to be facing relevant troubles due to its liquidity crisis, albeit the country has the largest FX reserves in the world.
Equities in China saw another massive drop on Wednesday and China’s Securities Finance Corp informed that it is intending to provide liquidity to lower the panic on markets due to approximately 500 companies had their trading suspended. China’s stock index CSI300 has dipped around 30% since the previous month, motivating the People’s Bank of China to act and boost stock market stability due to systemic and financial risks.
Oil reflected this environment and fell further, albeit the strongest driver was still more exaggerrated sentiment than real fundamentals. China is constatly slowing down its growth, but previous hints about recovery in country’s demand proved to be false and such short-term drops could hurt the economy. Then we can not expect any relevant recovery in the Eastern Asian economy and global supply will remain persistingly high compared to demand.
Both West Texas Intermediate (WTI) crude oil and European benchmark brent crude oil dipped over 1% on Wednesday, reflecting worries from the world’s most important economies. WTI traded at $51.67 a barrel, while Brent at $56.04 per barrel at the time of writing.
Slight correction may come later during the day, firstly after the Energy Information Administration (EIA) report and then the Federal Open Market Committee (FOMC) meeting minutes could brings some more hints about the Federal Reserve’s planned rate-hike, having impact on the US dollar.
In case of lower inventories, published by EIA, the optimism could lift prices of oil again, while any negative rate-hike hints could undermine the greenback’s strength and thus help oil as well.
Moreover, HSBC lowered its outlook for Asia (besides Japan) to 6.3% from previous 6.5%.
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