Oil extends declines on China growth woes, firmer dollar

Oil prices weakened on Wednesday, extending falls to a third straight day, as the dollar strengthened on a U.S. housing market recovery while fears persisted that monetary stimulus may not be enough to revive growth in China.

Brent futures fell 21 cents, or 0.3%, to $75.69 a barrel and U.S. West Texas Intermediate (WTI) crude futures were down 14 cents, or 0.2%, at $71.06 at 0043 GMT.

The dollar rose after data showed U.S. homebuilding surged in May to the highest in more than a year and permits for future construction climbed, suggesting the housing market may be recovering after being hammered by Federal Reserve rate hikes.

A firmer dollar weighs on oil demand as it makes the commodity more expensive for buyers holding other currencies.

The market remains concerned about a faltering recovery in China, the world’s top oil importer. Looking to boost growth, China on Tuesday cut its benchmark loan prime rates (LPR) for the first time in 10 months, with a smaller-than-expected 10-basis-point reduction in the five-year LPR.

The rate reduction followed recent economic data showing the China’s retail and factory sectors were struggling to sustain momentum from earlier this year.
“Investors remained impatient with China’s efforts to boost economic growth,” ANZ Research said in a client note on Wednesday. “Beijing’s slow stimulus rollout is adding concerns about the weakening economy.” Oil trade was also cautious ahead of congressional testimony by U.S. Federal Reserve Chair Jerome Powell later on Wednesday which is expected to provide clues on future rate moves in the world’s biggest economy.

Two Federal Reserve policymakers and an economist nominated to join them on the Fed’s Washington-based board on Tuesday said their focus is on bringing down too-high inflation so that the U.S. economy can get back to sustainable growth.

“We expect Fed Chair Powell to deliver a hawkish semi-annual testimony to Congress reflecting the FOMC’s median projection for higher interest rates in coming months and more resilient inflation in the near term,” ANZ Research said in the note, referring to the central bank’s Federal Open Market Committee.

Traders will also be looking out for U.S. oil inventory data from the American Petroleum Institute industry group later on Wednesday and the Energy Information Administration on Thursday, both reports delayed by a day following the Juneteenth public holiday on Monday.

Five analysts polled by Reuters estimated on average that crude stockpiles fell by about 400,000 barrels in the week to June 16.