China drops oil prices, may help gasoline in Brazil

The main commodity energy sector reacts to weak data on the Chinese economy, released overnight in Brazil. By all indications, the slowdown in activity there should reduce demand for Petroleum — and prices continue to fall.

At around 9:30 am, the barrel of Brent — used as an international benchmark — recorded a decline of 5.11%, trading at US$ 93.13. This is the lowest price for the commodity in more than six months.

Since the highs in March of this year, the barrel of Brent oil has already dropped about 26% with the prospect of a global slowdown – and possibly recession -.

It is worth remembering that oil prices soared after the start of the war between Russia and Ukraine, which sustained a general increase in fuel prices worldwide. In Brazil, price relief should generate a decompression of the Gasoline and derivatives.

According to the Dow Jones Newswires, the industrial production of China increased 3.8% from a year earlier, slightly below the 3.9% increase in June, according to the National Bureau of Statistics (NBS).

But the reading fell short of the 4.5% growth expected by economists polled by The Wall Street Journal.

Likewise, retail sales — one of the key metrics for consumption — grew 2.7% year-on-year in July, below the 3.1% expansion in June and the 5% increase expected by economists surveyed. .

unexpected interest cut

To stimulate economic activity – heavily affected by Beijing’s “zero covid” policy – ​​the People’s Central Bank of China (PBoC) cut the main interest rates in the country.

The news took the markets by surprise on the morning of this Monday (15), given that the PBoC had been maintaining a neutral stance against the rise in international prices.

In addition to the interest rate cut, the Chinese central bank also injected liquidity of 400 billion yuan (about US$59.3 billion) through the MLF (Medium-Term Lending). ) of one year and 2 billion yuan through seven-day reverse buybacks.

The reflection of this on the global economy — and on oil

The mixed signals from China made room for a sharp drop in oil, which should be reflected in the sector’s actions here on the Brazilian stock market.

But who should benefit from this fall is the consumer. A little less than a month ago, a bill (PL) limited the ICMS to the 17% cap, in addition to cutting other federal taxes on gasoline, diesel and telecommunications.

Added to this movement, oil prices have also been falling in view of the prospect of a global economic slowdown.

In the US, for example, the so-called “technical recession” — when the GDP falls for two straight quarters—keeps investors on guard against the risk of a real recession.

A stray in the electoral race

The drop in fuel prices — which should be reflected in a reduction in inflation — can be a determining factor for a new chapter of the elections.

The current president of the Republic and candidate for reelection, Jair Bolsonaro (PL)can benefit from further cuts in fuel prices.

The Planalto chief is experiencing a popularity crisis and remains in second place in the electoral polls, behind his main opponent, Luiz Inácio Lula da Silva (PT).

Thus, with Auxílio Brasil and a possible drop in fuels, political analysts understand that Bolsonaro can expand his base and take the election to the second round.

About Abhishek Pratap

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