Market Analysis

Oil declines due to concerns China's stimulus measures won't increase demand sufficiently

Amos Simanungkalit · 25 Sep 20245.6K Views

Oil prices declined on Wednesday as investors reconsidered whether China's stimulus measures would sufficiently boost its economy and consequently fuel demand, given that China is the world's largest crude importer.

At 0700 GMT, Brent crude futures had fallen by 19 cents, or 0.25%, to $74.98 per barrel, while U.S. West Texas Intermediate crude decreased by 28 cents, or 0.39%, to $71.28 per barrel.

Prices had risen approximately 1.7% on Tuesday following China's announcement of its most aggressive economic stimulus since the COVID-19 pandemic, which included interest rate cuts and government funding initiatives.

However, analysts cautioned that additional fiscal support is necessary to bolster confidence in the world's second-largest economy, which diminished the initial positive impact on oil prices. Yeap Jun Rong, a market strategist at IG, remarked, "The absence of a more definitive fiscal strategy raises concerns about the sustainability of the economic boost."

Yeap also noted that there was a general lack of momentum in the oil market, with trading volumes lower than usual, likely influenced by a drop in U.S. consumer confidence, which fell to its lowest level in three years in September, particularly due to concerns about job availability.

Nevertheless, a decrease in U.S. crude oil and fuel inventories provided some support for the market. Since hitting their lowest point since 2021 on September 10, prices have generally been on the rise. According to sources citing American Petroleum Institute figures, U.S. oil stockpiles decreased by 4.34 million barrels last week, with gasoline inventories down by 3.44 million barrels and distillate stocks falling by 1.12 million barrels.

Additionally, escalating tensions in the Middle East, particularly between Iran-backed Hezbollah in Lebanon and Israel, have bolstered crude prices. The conflict intensified with cross-border rocket launches raising fears of a wider conflict in this critical oil-producing region. On Wednesday, Hezbollah confirmed the death of senior commander Ibrahim Qubaisi due to Israeli airstrikes in the Lebanese capital, with Israel stating that Qubaisi was in charge of the group's missile and rocket operations.

In another development, a hurricane that threatened the U.S. Gulf Coast has shifted its path towards Florida, moving away from oil and gas-producing regions in Texas, Louisiana, and Mississippi.