Oil prices saw a modest increase on Wednesday, responding to indications of short-term supply constraints, yet they remained close to their lowest levels in two weeks. This fluctuation followed OPEC‘s recent downgrade of its projections for global oil demand growth for 2024 and 2025.
By 04:20 GMT, Brent futures had climbed by 17 cents, or 0.24 percent, reaching $72.06 a barrel, while U.S. West Texas Intermediate (WTI) crude futures rose by 14 cents, or 0.21 percent, settling at $68.26.
Concerns over demand forecasts
Despite the uptick, ongoing concerns regarding declining demand forecasts and economic sluggishness in major consumer China continued to exert pressure on market sentiment. In its monthly report released on Tuesday, the Organization of Petroleum Exporting Countries (OPEC) revised its estimate for global oil demand growth down to 1.82 million barrels per day (bpd) in 2024, a decrease from the previously anticipated growth of 1.93 million bpd, largely attributed to economic weakness in China, the world’s largest oil importer.
Read more: Oil prices steady as China’s stimulus disappoints, U.S. supply fears ease
Market reactions to recent trends
On Tuesday, oil prices managed to settle up 0.1 percent, recovering slightly after a decline of approximately 5 percent over the previous two sessions. Nevertheless, analysts warned that the market could still face the repercussions of potential supply disruptions from Iran or escalating tensions in the Middle East.
Last week, the Federal Reserve lowered its policy rate by a quarter of a percentage point to a range of 4.50 to 4.75 percent. Typically, such interest rate cuts stimulate economic activity and can lead to increased energy demand.
Delayed inventory reports
U.S. weekly inventory reports were delayed by a day due to Monday’s Veterans Day holiday, with the American Petroleum Institute’s data scheduled for release at 4:30 p.m. EST (21:30 GMT) on Wednesday.
China’s fiscal measures disappoint investors
On Monday, crude prices dropped sharply after China’s announcement of additional fiscal spending failed to satisfy investors, compounded by disappointing inflation data from the world’s largest oil consumer. In the U.S., worries about supply disruptions eased as tropical storm Rafael was observed weakening in the Gulf of Mexico, reducing fears of potential interruptions in production from the region.
Futures show slight recovery
Brent oil futures for January rose by 0.2 percent, reaching $71.95 a barrel, while West Texas Intermediate crude futures also saw a 0.2 percent increase to $68.04 a barrel by 20:29 ET (01:29 GMT). Both contracts had previously experienced declines of over 2 percent on Monday.
The oil market also faced additional pressure from a strong dollar, bolstered by speculation surrounding a potential Donald Trump victory in the upcoming presidential election, which elevated the currency to a four-month high. Traders were eager to gauge how Trump’s policies might influence U.S. oil production and global supply dynamics.
Stimulus measures fall short in China
China’s recent stimulus measures have left many investors feeling disappointed, as the country introduced a debt swap initiative worth around 10 trillion yuan ($1.6 trillion) to support local governments. However, this initiative is expected to provide only minimal direct assistance to the economy. Additionally, Beijing did not announce any immediate fiscal actions aimed at stimulating the property market or enhancing private consumption.
Concerns about China’s demand
The lack of direct interventions has raised concerns about further deterioration in demand from China, particularly as the country has seen a consistent decline in oil imports in recent months, along with signs of easing fuel demand. Investors had hoped for more robust support, particularly for private consumption, but recent data indicated a contraction in consumer inflation in China for October, along with a 25th consecutive month of decreasing producer inflation.
Reactions to Chinese fiscal policies
On Monday, oil prices fell in reaction to China’s recent fiscal stimulus measures, which aimed to address government debt but did not meet market expectations. The absence of initiatives directly targeting private consumption left investors feeling unsatisfied, especially in light of ongoing deflationary pressures in China.
Hurricane Rafael’s impact on production
In the U.S., concerns about immediate production disruptions diminished as Hurricane Rafael weakened into a tropical storm after making landfall in Cuba. However, several energy companies in the Gulf of Mexico chose to keep their production offline.
As of 20:38 ET (01:38 GMT), Brent oil futures for January decreased by 0.2 percent to $73.72 per barrel, while West Texas Intermediate crude futures fell by 0.3 percent to $69.90 per barrel.
Easing supply concerns in the U.S.
Easing concerns about supply disruptions in the U.S. also contributed to a decline in oil prices, as tropical storm Rafael was observed dissipating over the Gulf of Mexico. Some energy operators in the area began to resume operations, although reports indicated that approximately 25 percent of oil production in the region remained offline. After passing through Cuba, Rafael weakened further and is expected to diminish as it moves southwest.
Production outlook under uncertainty
The storm’s reduced intensity is projected to pose a limited threat to oil production in the region, alleviating concerns about potential supply interruptions. Market participants in the U.S. remain uncertain about production outlooks, especially under a potential Trump administration, which could boost production while also imposing stricter sanctions on Venezuela and Iran, possibly impacting global oil supplies.
Weekly performance and market sentiment
While oil prices dipped slightly on Friday, they remained on track for a positive weekly performance, supported by OPEC+’s decision to postpone plans for increasing production. This decision, along with the potential for further supply disruptions in the U.S., has fostered optimism in the market. Traders are hopeful regarding forthcoming fiscal stimulus measures from China, while Trump’s anticipated victory in the 2024 presidential election has sparked a broader rally across financial markets. Ongoing tensions in the Middle East have also added a risk premium to oil prices.
For more news on markets, click here.
