Investing.com -- Oil prices rose in Asian trade on Monday, largely shrugging off a disappointing interest rate cut from major importer China as the prospect of tighter supplies supported the outlook.
Concerns over slowing demand in China and rising U.S. interest rates had driven steep losses in crude prices over the past week, pulling them away from 2023 highs and also seeing them snap a seven-week winning streak.
But the prospect of tighter supplies, following deep production cuts from Saudi Arabia and Russia this year, helped keep a floor under prices.
Brent oil futures rose 0.5% to $85.21 a barrel, while West Texas Intermediate crude rose 0.5% to $81.08 a barrel by 21:38 ET (01:38 GMT).
China cuts loan prime rate by lesser than expected
The PBOC cut its one-year loan prime rate by 10 basis points to 3.45%, while the five-year LPR, which is used to determine mortgage costs, was left at 4.20%.
The move disappointed market forecasts for a 15 basis point cut in each rate, and indicated that the country had limited room to ease monetary policy further.
Monday's cut comes as a raft of recent indicators showed that the world’s largest oil importer is struggling with a slowing post-COVID economic recovery, which appeared to have dented its oil demand in the past month. Recent data showed that China's oil imports tumbled from near-record highs in July.
The PBOC vowed to roll out more liquidity measures to support growth, as well as help fish the Chinese economy out of a deflationary trend.
But the lack of changes in the mortgage rate also drummed up concerns over a worsening real estate crisis in China, with a slew of major developers facing debt defaults due to slowing sales and construction.
Investors are now calling for more targeted measures to support the sector, although analysts say such a scenario appears unlikely as China tries to curb its economic dependence on real estate.
Tighter supply, steady U.S. demand still underpin oil
But while oil prices fell through the past week, they were still trading between 2% and 3% higher for 2023, with the outlook also looking buoyant after deep production cuts by Saudi Arabia and Russia.
The world’s largest oil producers said that recent production cuts will extend until at least end-September- a scenario that is expected to limit crude supplies by nearly 70 million barrels over 45 days.
The prospect of tighter supplies has largely kept a floor under crude prices, with analysts expecting prices to remain relatively higher for the remainder of the year.
Robust fuel consumption in the U.S., particularly through the travel-heavy summer season, also pointed to tighter markets. Still, the outlook for U.S. demand was somewhat soured by the prospect of higher interest rates.