Friday, oil futures went down. Part of the reason for this was unhappiness with China’s most recent round of stimulus measures.
The price changes
- West Texas Intermediate crude CL00 -2.78% for delivery in December CL.1-2.78% While prices were up 1.4% for the week, CLZ24 -2.78% fell $1.95, or 2.7%, to $70.41 a barrel on the New York Mercantile Exchange.
- January Brent crude BRN00 -2.42% The world standard, BRNF25 -2.42%, fell $1.41, or 1.9%, to $74.22 a barrel on ICE Futures Europe. Prices are expected to rise 1.6% this week.
- December gasoline (RBZ24-1.75%) fell 2.3% to $2.0067 a gallon, but it was still up 2% for the week. December heating oil (HOZ24 -2.00%) also fell 2.2% to $2.2359 a gallon, but it was not much different from the week before.
- Natural gas for delivery in December (NGZ24 -1.15%) was trading at $2.74 per million British thermal units. It was up 1.8% for the day and expected to rise 2.7% for the week.
Market forces
“Concerns that China is not doing enough to inspire oil demand,” said Phil Flynn, senior market expert at the Price Futures Group. This caused oil prices to fall on Friday.
China approved a $1.4-trillion plan to help local governments on Friday. Xinhua News reported from a news conference that it will add 6 trillion yuan, or $840 billion, to the maximum amount of debt that local governments can have. Over the next five years, 4 trillion yuan will also be given out as special government notes. Other news stories that came out of the press meeting were that the government is speeding up the process of re-capitalizing banks and that China is planning a strict fiscal policy for next year.
But traders were not impressed by the deal. They are still worried about demand from China, which is the biggest buyer of crude oil in the world.
Stephen Innes, managing partner at SPI Asset Management, said in a note, “The lifeline felt more like a quick fix than the full-blown stimulus bazooka the markets had hoped for.” This was met with a general eye-roll. “The mistake sent shockwaves through the world’s markets, and oil prices dropped on worries that China’s slowing economy would keep demand for commodities low.”
But oil prices are still going up for the week. Part of the support comes from the belief that President-elect Donald Trump will move to tighten sanctions against Iran’s oil exports. This could finally remove about 1 million barrels of supply per day from the market, according to analysts.
“Near term, oil markets are back to their classic puzzle shape,” Innes told MarketWatch in an email. “One eye is on Trump’s possible hardline stance on Iran, and the other eye is on the “drill, baby, drill” approach to U.S. production.”
He said that tougher sanctions against Iran “could tighten global supply, giving oil prices a bullish jolt.” “But behind the scenes, Saudi Arabia might be happy about this move—it would give them the chance to add more oil to the market and keep the balance just right.”
As for the U.S., Trump is likely to encourage producers to make more, which will “stir the supply pot even more,” according to Innes.
Looking ahead to 2025, “the prospect of a supply glut looms large, with global production on track to outpace demand just as China redefines its energy landscape,” he said, adding that China’s rapid shift toward electric vehicles is “reshaping demand in a big way.”
Meanwhile, threats of supply outages due to Hurricane Rafael were “subsiding as the storm shifts to circling in the center of the Gulf of Mexico for the next 5 days or so,” Alex Hodes, director of energy-market strategy at StoneX, said in a daily newsletter, citing the latest forecasts from the National Oceanic and Atmospheric Administration.
On Thursday, the Interior Department’s Bureau of Safety and Environmental Enforcement reported that an estimated 22.4% of current oil production and 9.7% of natural-gas production in the Gulf of Mexico have been shut in, or temporarily halted, due to Rafael.
