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Oil prices fell slightly on Monday, pressured by Moody’s downgrade of the U.S. sovereign credit rating and signs of a cooling economic recovery in China, the world’s largest crude importer.
As of 04:40 GMT, Brent crude futures for front-month delivery dropped 35 cents, or 0.5%, to $65.06 per barrel, while U.S. West Texas Intermediate (WTI) crude fell 26 cents, or 0.4%, to $62.23. The more-active July WTI contract declined 31 cents, or 0.5%, to $61.66 ahead of the June contract’s expiration on Tuesday.
Despite last week’s gains—where both benchmarks rose over 1% following a 90-day tariff truce between the U.S. and China—investors are adopting a more cautious stance amid fresh macroeconomic headwinds.
Moody’s Downgrade Casts Shadow
Credit ratings agency Moody’s cut its outlook on the U.S. sovereign credit rating late Friday, citing the country’s ballooning $36 trillion debt and rising fiscal pressures. While the downgrade doesn’t directly impact short-term oil demand, analysts say it adds to an increasingly cautious market sentiment.
“The downgrade may not impact oil demand directly, but it does create more sober market sentiment,” noted Priyanka Sachdeva, senior analyst at Phillip Nova.
The move could complicate President Donald Trump’s tax reform agenda, potentially dampening consumer confidence and economic activity in the months ahead.
China’s Economic Momentum Eases
In Asia, China’s official data showed industrial output growth slowed in April, although the figures still slightly beat economist forecasts. Retail sales growth also moderated, raising concerns about the sustainability of China’s post-pandemic recovery.
Even after the recent U.S.-China trade truce, Beijing faces continued headwinds as Trump maintains 30% tariffs on key Chinese exports. Economists warn that this backdrop, combined with weakening domestic demand, may weigh on China’s crude imports going forward.
Geopolitical Risks and Supply Factors
Oil losses were kept in check by ongoing geopolitical tensions and supply-related developments:
- Iran nuclear talks remain unresolved, with U.S. envoy Steve Witkoff stating that any deal must ban uranium enrichment. Tehran swiftly rejected the condition, clouding prospects for Iranian crude returning to global markets.
- Russia-Estonia tensions flared after Moscow detained a Greek-owned tanker that had just departed an Estonian Baltic Sea port, raising new concerns over European supply routes.
- In the U.S., oil drillers cut one rig last week, bringing the total down to 473, according to Baker Hughes. This marks the lowest rig count since January and signals a focus on capital discipline that could cap U.S. output growth in the near term.
Despite the bearish start to the week, oil markets remain broadly supported by the U.S.-China trade detente and OPEC+ production strategies. Still, with uncertainty swirling around macroeconomic stability, geopolitical risks, and policy direction, volatility is likely to persist in the near term.
