DTN Oil

WASHINGTON (DTN) -- New York Mercantile Exchange West Texas Intermediate and Intercontinental Exchange Brent futures fell in early trading Monday in reaction to bearish economic data from China showing oil imports contracted 2% in September as refiners struggled to utilize increased quotas amid COVID-19 lockdowns.

The bearish data was compounded as Chinese President Xi Jinping was given a third, five-year term during the twice-a-decade Communist Party Congress, and reshuffled his government, appointing loyalists to all key positions that dashed hope Beijing would soon pivot away from Xi's demand-sapping zero-COVID policy. China's economy has been hammered by rolling COVID-19 lockdowns, government restrictions on the property sector and international travel.

Chinese stocks on Monday capped their worst day since the 2008 global financial crisis as investors fled mainland markets after a major power grab in Beijing. The onshore yuan fell as much as 0.6% against the U.S. dollar to the weakest level since January 2008. Underscoring the market meltdown is growing fear that the appointment of Xi's allies to the key government positions would make it impossible to enact pro-growth, market policies.

A slew of China's key economic data released overnight after abrupt delays last week showed a mixed and sluggish recovery in the world's second largest economy. China's Gross Domestic Product for the third quarter bounced to a stronger-than-expected 3.9% growth rate after contracting by 2.6% in the previous three months, but retail sales disappointed with a 0.5% contraction. China's industrial production beat expectations with 0.8% growth in September, bringing the annualized expansion in its industrial economy to 6.3%.

China's oil imports in September were down 2% from a year earlier despite increased quotas for independent refiners, signaling demand growth in the world's largest oil importer stalled. In August and July, weakness in China's oil imports was even more pronounced, averaging just 9.17 million bpd or a full 9% below 2021 level.

China's demand for fuel this year is now expected to shrink for the first time on record, with data going back 20 years. With Xi's loyalists in power, investors will likely remain skeptical of China's potential to rebound from its COVID-scarred slowdown.

Volatility in Asia's markets lifted the U.S. dollar in early trading Monday, with the greenback trading 0.3% higher against a basket of foreign currencies at 112. The dollar sold-off sharply on Friday after Wall Street Journal reported some Federal Reserve officials are considering slowing the pace of rate hikes towards the end of year to reassess the impact of tightening monetary policy on the broader economy.

The Federal Open Market Committee is expected to raise the federal funds rates by another 0.75% at their Nov. 1-2 meeting, which would be the fourth consecutive rate hike of this magnitude in as many meetings. Fed officials are raising rates at the most aggressive pace since the early 1980s, and some officials are becoming concerned about a deep recession as rate hikes work themselves into the economy.

"I worry that if the way you judge it is another bad inflation report must be that we need more rate hikes that puts us at somewhat greater risk of responding overly aggressive," said President of Chicago Federal Reserve Bank Charles Evans this week.

"We will have a very thoughtful discussion about the pace of tightening at our next meeting," Fed governor Christopher Waller said in a speech earlier this month.

Other Fed officials are frustrated with the lack of progress in curtailing inflation despite tighter monetary conditions.

"Given our frankly disappointing lack of progress on curtailing inflation, I expect we will be well above 4% by the end of the year," said Philadelphia Fed President Patrick Harker in remarks Thursday (Oct. 20) in Vineland, N.J.

In response to Friday's WSJ article, investors sharply reduced bets for another 0.75% rate increase in December, down from 77% seen just a week ago to 49.5% today, showed CME's FedWatch Tool.

Near 7:30 a.m. EDT, December WTI futures dropped more than $1 to trade near $84.08 barrel (bbl), and the international crude benchmark for December delivery fell by $0.81 bbl to $92.72 bbl. ULSD futures for November delivery gained 1.46 cents to $3.8469 gallon, and November RBOB futures declined 4.29 cents to $2.6191 gallon.

Liubov Georges can be reached at liubov.georges@dtn.com