Oil prices inch lower ahead of Fed meeting, soft Chinese economic data weighs

Oil prices were marginally lower in early Asian trade on Tuesday, a day after soft economic readings from China dampened sentiment, while traders were cautious ahead of a U.S. Federal Reserve policy meeting later this week.

At 20:41 ET (01:42 GMT), Brent Oil Futures  inched 0.2% lower to $73.81 a barrel, while Crude Oil WTI Futures  ticked 0.1% down to $70.20 a barrel.

Both contracts, expiring in February, retreated on Monday as weak Chinese data spurred concerns over slower demand. Weak Chinese data clouds demand outlook

China released key economic indicators for November on Monday, revealing a mixed economic landscape. 

Industrial output increased as expected, slightly surpassing October's growth and indicating modest industrial sector improvement. 

However, retail sales growth decelerated sharply in November, undershooting expectations and highlighting persistent weaknesses in consumer spending. 

Moreover, home prices declined by 5.7% year-over-year in November, following a 5.9% drop in October, highlighting ongoing challenges in the real estate sector.

These indicators raise concerns for the oil market, as China is the world's largest crude importer. The slowdown in retail sales reflects fragile domestic demand, potentially dampening energy consumption. Additionally, the modest increase in industrial output suggests that manufacturing activities are not robust enough to significantly boost oil demand. 

Beijing had also provided middling cues on fresh stimulus measures last week. Markets cautiously await Fed rate decision

Markets were largely cautious before a Fed meeting this week, where the central bank is widely expected to trim rates by 25 basis points but also flag a slower pace of cuts for 2025.

The prospect of lower interest rates typically supports economic growth, potentially boosting oil demand. However, uncertainties surrounding the Fed's future policy direction have introduced a degree of market hesitation. 

This cautious sentiment is also contributing to the current softness in oil prices, as traders await clearer signals from the central bank's upcoming meeting.

After hefty gains last week, oil prices have remained under pressure this week. The potential for tighter oil markets in the face of stricter U.S. sanctions on Russia, and expectations of new stimulus measures from China had provided support to the oil prices last week.

Source: Investing.com