Oil prices extended their decline on Monday as concerns over potential supply disruptions from a US storm subsided and after China’s recent stimulus measures failed to meet market expectations.
Brent crude futures dropped by 19 cents, or 0.3%, to $73.68 a barrel, while US West Texas Intermediate (WTI) crude futures were down 25 cents, or 0.4%, at $70.13 a barrel.
The drop in oil prices followed a more than 2% decline on Friday, driven by market reactions to multiple factors. One key element was the announcement of China’s stimulus package at the National People’s Congress (NPC) meeting on Friday. Analysts noted that the package did not deliver the level of support anticipated by investors, particularly in terms of driving fuel demand. IG market analyst Tony Sycamore pointed out that the stimulus focused primarily on housing and consumption, with a lack of clear guidance regarding future fiscal measures.
Analysts at ANZ highlighted that the absence of direct fiscal stimulus suggested that Chinese policymakers may be holding back to assess the impact of US policies under the incoming administration of President-elect Donald Trump. They anticipate that the market’s focus will now shift to China’s Politburo meeting and Central Economic Work Conference in December, where further pro-consumption measures may be introduced.
China, the world’s second-largest oil consumer, has seen sluggish oil consumption growth in 2024 due to slower economic expansion, declining gasoline use, and a shift from diesel to liquefied natural gas (LNG) for trucking. These changes have led to a reduction in China’s crude oil imports, further weighing on global oil demand expectations.
Oil prices were also impacted by easing concerns about a potential supply disruption from Storm Rafael in the US Gulf of Mexico. By Sunday, over a quarter of oil production in the region, as well as 16% of natural gas output, remained offline, but the situation was less severe than initially feared.
In the broader market, the strengthening US dollar added to the downward pressure on oil prices. A stronger dollar makes oil, priced in US dollars, more expensive for holders of other currencies, reducing demand for the commodity.
Looking ahead, uncertainty surrounding global oil supply and demand remains, with analysts also monitoring potential shifts in US energy policy under President-elect Trump. His stance on sanctions against OPEC producers such as Iran and Venezuela could impact global oil markets, contributing to the volatility observed in recent weeks.
Despite these challenges, oil markets are supported by firm demand from US refiners, who are expected to operate their plants at high capacity levels due to low inventories and rising demand for gasoline and diesel. The market is also awaiting key outlook reports, with the Organization of the Petroleum Exporting Countries (OPEC) releasing its forecasts on Tuesday, followed by updates from the US Energy Information Administration (EIA) and the International Energy Agency (IEA) later in the week.
