Oil prices witnessed a decline on Monday, as the recent fiscal stimulus measures introduced by China, the world’s largest oil importer, fell short of expectations. Also, a hurricane in the Gulf of Mexico seemed to have a minimal effect on U.S. oil production.
Prices continued their downward trend from Friday after Beijing approved approximately 10 trillion yuan ($1.4 trillion) in initiatives aimed at reducing government debt levels. However, the absence of measures specifically targeting private consumption left investors dissatisfied, especially in light of data released over the weekend that indicated ongoing deflation in China.
In the United States, concerns about immediate production disruptions subsided as Hurricane Rafael weakened into a tropical storm upon making landfall in Cuba. Nonetheless, several energy companies in the Gulf of Mexico chose to keep their production facilities offline.
As of 20:38 ET (01:38 GMT), Brent oil futures for January dropped 0.2 percent to $73.72 per barrel, while West Texas Intermediate crude futures fell 0.3 percent to $69.90 per barrel.
China’s stimulus falls short
The new stimulus measures from China disappointed investors who had hoped for more substantial support, particularly since the country’s initiatives did not include specific provisions to boost private consumption. Additionally, Trump’s commitment to impose significant import tariffs on China is expected to create further economic challenges for the nation. Recent data also revealed that consumer inflation in China contracted in October, and producer inflation has now decreased for the 25th consecutive month.
Easing U.S. supply concerns as hurricane Rafael weakens
Hurricane Rafael has weakened into a tropical storm over the Gulf of Mexico and is anticipated to diminish further in the days ahead. The storm is now expected to pose a limited threat to oil production in the region, reducing fears of supply interruptions. In the U.S., market participants were uncertain about the production outlook, which might see an increase under Trump’s administration. However, he is also likely to enforce stricter sanctions against Venezuela and Iran, potentially impacting global oil supplies.
Oil prices dipped slightly on Friday but remained on track for a positive weekly performance as OPEC+ opted to delay plans for ramping up production. This decision, along with the potential for further supply disruptions in the U.S., fueled market optimism.
Traders were optimistic about upcoming fiscal stimulus measures from China, while Trump’s victory in the 2024 presidential election sparked a broad rally across financial markets. Ongoing tensions in the Middle East also contributed to a risk premium in oil prices.
As of 20:11 ET (01:11 GMT), January Brent oil futures fell 0.3 percent to $75.44 per barrel, while West Texas Intermediate crude futures also decreased by 0.3 percent to $71.72 per barrel. Despite this, both contracts saw an increase of around 3 percent to 4 percent over the week.
Oil market support from OPEC+ and weather factors
The primary support for oil markets this week came from the Organization of Petroleum Exporting Countries and its allies (OPEC+), which announced a postponement of their planned production increase set for December. The cartel had previously reduced production by nearly 6 million barrels per day over the past two years to stabilize prices, and these cuts will now remain in effect for a longer duration. Additionally, concerns regarding Hurricane Rafael helped bolster oil prices, as several energy operators in the Gulf of Mexico evacuated their operations in anticipation of the storm.
Potential fiscal measures from China’s NPC
Earlier last week, China’s NPC began a four-day session with expectations of announcing plans for increased fiscal spending aimed at stimulating economic growth. As the world’s largest oil importer faces a persistent slowdown, significant fiscal measures are anticipated. In the lead-up to this meeting, Beijing has introduced various aggressive stimulus initiatives, and the NPC is expected to clarify these fiscal strategies.
Analysts at JPMorgan recently noted that Trump’s election might encourage Beijing to expedite its fiscal stimulus efforts, especially considering his promise to impose substantial trade tariffs on China.
Last Thursday, oil prices rose as attention turned to the likelihood of increased fiscal stimulus in China. Traders were also considering the implications of Trump’s recent electoral success. Prices began to recover from earlier losses, which were exacerbated by Trump’s victory, briefly lifting the dollar to a four-month high and putting pressure on oil markets. However, the U.S. dollar stabilized on Thursday following its recent rise.
For more news on markets, click here.
