Oil prices experienced a slight decline on Friday, yet were poised for a favorable weekly outcome as OPEC+ decided to postpone plans for increased production. This decision, coupled with the potential for further supply disruptions in the U.S., contributed to market optimism.
Traders were feeling hopeful about forthcoming fiscal stimulus measures from China, the leading importer of crude, while Donald Trump’s victory in the 2024 presidential election triggered a widespread rally across financial markets. Ongoing tensions in the Middle East also kept a risk premium in oil prices.
As of 20:11 ET (01:11 GMT), January Brent oil futures slipped 0.3 percent to $75.44 per barrel, while West Texas Intermediate crude futures also fell 0.3 percent to $71.72 per barrel. Nevertheless, both contracts saw increases of approximately 3 percent to 4 percent over the week.
Oil supported by OPEC+ decision and weather concerns
The primary support for oil markets this week stemmed from the Organization of Petroleum Exporting Countries and its allies (OPEC+) announcing a delay in their plans to increase production starting in December. The cartel had previously cut production by nearly 6 million barrels per day over the past two years to stabilize prices, and these reductions will now remain in effect for an extended period.
Additionally, concerns regarding Hurricane Rafael buoyed oil prices, as several energy operators in the Gulf of Mexico evacuated their operations due to the storm’s approach through this oil-rich region.
Anticipation of Chinese fiscal stimulus
Market attention has now shifted to the National People’s Congress (NPC) in China, which is expected to reveal new stimulus measures. The NPC convened earlier this week and is scheduled to conclude its sessions on Friday. Over the past month, Beijing has rolled out various monetary and fiscal initiatives aimed at revitalizing the economy, but any significant fiscal spending must be sanctioned by the NPC, which is anticipated to happen soon.
Analysts forecast at least 10 trillion yuan (approximately $1.6 trillion) in new expenditure, with expectations that these measures will enhance economic growth in the world’s largest oil importer.
Recent price movements and market reactions
On Thursday, oil prices saw an increase as focus shifted to the likelihood of heightened fiscal stimulus in China. Traders were also analyzing the implications of Trump’s recent electoral win. Prices began to recover from losses sustained in the previous session, where Trump’s victory briefly lifted the dollar to a four-month high, putting pressure on oil markets. However, the U.S. dollar stabilized on Thursday following its recent ascent.
The markets were further influenced by reports indicating a larger-than-expected rise in U.S. inventories. By 20:19 ET (01:19 GMT), January Brent oil futures rose by 0.5 percent to $75.28 per barrel, while West Texas Intermediate crude futures increased by 0.4 percent to $71.54 per barrel.
Potential fiscal measures from China’s NPC
Earlier this 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.
Market response to Trump’s election and U.S. supply indicators
In the wake of Trump’s electoral victory, oil prices initially dipped on Wednesday due to concerns that U.S. oil production could rise further under his administration, exacerbating the existing global supply surplus. However, prices rebounded somewhat as traders speculated that Trump’s potential hardline stance could lead to additional sanctions, thereby restricting global oil supply.
Moreover, Trump’s anticipated implementation of expansive economic policies could bolster U.S. demand for oil in the long term. Concurrently, markets received discouraging signals from data indicating a larger-than-expected inventory gain in the U.S.
Traders remained alert to potential supply disruptions in the Gulf of Mexico due to Hurricane Rafael, which is projected to pass through the oil-rich area this week. Additionally, a Federal Reserve meeting was expected to conclude later on Thursday, with market expectations leaning toward a 25 basis point interest rate cut.
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