Oil prices remained steady on Tuesday following significant losses in the previous session, as stimulus efforts in China failed to meet expectations while attention also turned to U.S. supply levels.
Crude prices plummeted on Monday after China’s announcement of additional fiscal spending left investors feeling unsatisfied, compounded by disappointing inflation figures from the world’s largest oil consumer.
In the U.S., concerns about supply disruptions diminished as tropical storm Rafael was observed weakening in the Gulf of Mexico, alleviating fears of potential interruptions in the region.
Brent oil futures for January increased by 0.2 percent, reaching $71.95 a barrel, while West Texas Intermediate crude futures also rose by 0.2 percent to $68.04 a barrel by 20:29 ET (01:29 GMT). Both contracts had experienced declines of over 2 percent on Monday.
The oil market faced additional pressure from a robust dollar, as positioning around a potential Donald Trump victory in the presidential election propelled the currency to a four-month high. Traders were also keen to understand how Trump’s policies might influence U.S. oil production and global supply dynamics.
China’s stimulus falls short, more measures anticipated
China introduced a debt swap initiative valued at approximately 10 trillion yuan ($1.6 trillion) aimed at supporting local governments in the coming years. However, this measure is expected to offer minimal direct assistance to the economy. Moreover, Beijing refrained from announcing any direct fiscal actions to stimulate the property market or bolster private consumption.
The lack of direct interventions has unsettled sentiment regarding the world’s largest oil importer, raising concerns that demand in China may deteriorate further. China’s oil imports have consistently declined in recent months, with fuel demand also showing signs of easing.
Recent stimulus efforts from China have left investors disillusioned, as they anticipated more robust support, particularly in terms of private consumption. Additionally, Trump’s commitment to impose significant tariffs on Chinese imports is expected to pose further economic challenges for the nation. Recent data also highlighted that consumer inflation in China contracted in October, with producer inflation decreasing for the 25th consecutive month.
Oil prices decline amid mixed signals
On Monday, oil prices fell as China’s recent fiscal stimulus measures, aimed at reducing government debt, did not meet market expectations. The absence of initiatives specifically targeting private consumption left investors feeling dissatisfied, particularly amid data indicating persistent deflation in China.
In the U.S., fears of immediate production disruptions lessened as Hurricane Rafael transitioned into a tropical storm upon its landfall in Cuba. Nonetheless, several energy companies in the Gulf of Mexico opted to keep their production operations offline.
As of 20:38 ET (01:38 GMT), Brent oil futures for January dropped 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 U.S. supply concerns as Hurricane Rafael weakens
Easing worries 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 resuming operations, although reports indicated that approximately 25 percent of oil production in the region remained offline.
After passing through Cuba, Rafael weakened from a hurricane to a tropical storm and is expected to further diminish as it drifts southwest.
Hurricane Rafael has transitioned into a tropical storm over the Gulf of Mexico and is projected to weaken further in the coming days. The storm is now expected to present a limited threat to oil production in the region, alleviating concerns about supply interruptions. Market participants in the U.S. remained uncertain about production outlooks, particularly under a potential Trump administration, which could increase production but also impose stricter sanctions on Venezuela and Iran, potentially affecting global oil supplies.
While oil prices dipped slightly on Friday, they remained poised for a positive weekly performance as OPEC+ decided to postpone plans for increasing production. This decision, alongside the potential for further supply disruptions in the U.S., fueled optimism in the market. Traders expressed hope regarding upcoming fiscal stimulus measures from China, while Trump’s anticipated victory in the 2024 presidential election ignited a broad rally across financial markets. Ongoing tensions in the Middle East also added a risk premium to oil prices.
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