Crude oil prices declined as market reacts to underwhelming Chinese stimulus

On the morning of November 11, crude oil prices dropped during mid-morning trading in Asia, as markets continued to react to China's disappointing stimulus package unveiled late on November 8. The package, which failed to ignite confidence in the country's struggling economy, dampened expectations for stronger demand from the world's largest crude oil importer.

Crude Oil Futures Dip as China's Stimulus Falls Short of Market Expectations

At 11:04 AM Singapore time (03:04 GMT) on November 11, crude oil futures saw a slight dip, with the ICE January Brent contract falling by 18 cents, or 0.24%, to $73.69 per barrel. Similarly, the NYMEX December light sweet crude contract dropped 22 cents, or 0.31%, to $70.16 per barrel.

The market's reaction came after China’s National People’s Congress (NPC) unveiled a long-awaited fiscal stimulus package worth ¥10 trillion. Initially, there had been hopes that the package would help revive China’s ailing economy. However, the plan fell short of expectations, failing to generate significant optimism about a robust economic recovery.

SPI Asset Management Managing Partner Stephen Innes noted that while the stimulus package was substantial—representing roughly 8% of China's GDP—the focus was mainly on debt relief for local governments, stabilizing infrastructure projects, and supporting local financing vehicles. "It is not exactly the growth rocket many had hoped for," Innes said.

Further weighing on market sentiment, data from October showed continued economic weakness in China. Producer prices fell by 2.9% year-on-year in October, a steeper decline than the 2.8% drop seen in September, marking the largest decrease in 11 months. Meanwhile, the consumer price index (CPI) grew by just 0.3%, the slowest pace in four months, signaling that China’s road to economic recovery is likely to be slow.

Oil Market Struggles with Economic Uncertainty

Concerns about future economic challenges also intensified, as President-elect Donald Trump's proposed tariffs are expected to further pressure China’s growth, potentially dampening oil demand. Analysts from ANZ, Brian Martin and Daniel Hynes, also pointed out that even the Biden administration’s recent purchase of 2.4 million barrels for the Strategic Petroleum Reserve went largely unnoticed by the market.

Meanwhile, the impact of Hurricane Rafael in the Gulf of Mexico added another layer of uncertainty. Oil and natural gas production in the region was significantly impacted, with about 23% of oil production and 11% of gas production temporarily shut in. This was due to preparations for the hurricane, which had the potential to strengthen into a Category 3 storm. As of November 8, approximately 408,830 barrels per day (b/d) of oil and 201,000 million cubic feet per day (MMcf/d) of gas had been offline.

Despite these production disruptions, U.S. oil output had reached a record high of 13.5 million b/d for the week ending November 1. However, the closure of production facilities, including those operated by Chevron in the Gulf, has been a concern. "Any downturns in the crude complex are likely to be limited, as fears of potential damage from Hurricane Rafael are expected to support market fundamentals," said Hynes and Martin.

In Asia, Dubai crude swaps and intermonth spreads also saw declines in midmorning trading on November 11. The January Dubai swap was marked at $72.09 per barrel, down $1.12, or 1.53%, from the previous close on November 8. The December-January Dubai swap intermonth spread narrowed by 12 cents to 31 cents per barrel, while the January-February spread also saw a slight narrowing of 3 cents to 25 cents per barrel. The Brent/Dubai exchange of futures for swaps was pegged at $1.58 per barrel, down 8 cents from the previous close.

These market dynamics are indicative of ongoing uncertainty and caution within the oil market, shaped by both global economic concerns and weather-related disruptions.

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