Oil prices experienced a downward trend on Tuesday, with concerns mounting over China’s economic transformation plans amid sluggish growth following the COVID-19 pandemic. Despite efforts by major oil producers to stabilize prices through output cuts, worries about weakening demand persist, exacerbated by China’s cautious economic targets.
By 6:44 GMT, Brent crude futures saw a 0.46 percent decline to $82.42. This decline marks the fifth consecutive session of losses for Brent. Meanwhile, West Texas Intermediate crude futures declined by 0.57 percent, to $78.29 a barrel.
China’s economic plans
China’s pledge to transform its economic development model, curb industrial overcapacity, and maintain a growth target of around 5 percent for 2024, similar to the previous year, did little to ease investor concerns. Analysts suggest that achieving this target may prove challenging, especially considering the favorable base effect from the COVID-impacted 2022. However, if China hits that target, its fuel consumption will likely increase, thus supporting oil prices.
The world’s biggest crude importer also pledged to explore and develop oil and natural gas resources. At the same time, it vowed to tighten control over fossil fuel consumption.
Supply factors
Despite the downward pressure on oil prices due to China’s demand concerns, supply-side factors such as geopolitical tensions offer some support to crude markets. Moreover, the decision by the Organization of the Petroleum Exporting Countries and its allies (OPEC+) to extend voluntary oil output cuts of 2.2 million barrels per day into the second quarter aims to bolster oil prices amid growing global growth concerns and rising output from non-member countries.
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Inventory levels
While OPEC+ aims to curb output to support oil prices, preliminary data by Reuters suggests an increase in U.S. crude oil inventories by approximately 2.6 million barrels last week. However, analysts expect lower U.S. distillates and gasoline stockpiles.
Analysts note that despite recent movements in oil prices, the market has shown signs of improvement in fundamentals. Rising spot prices indicate a tightening physical market, alongside disruptions in the supply chain. However, uncertainties surrounding demand and supply dynamics continue to influence investor sentiment.
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