Oil prices took another downturn following a bearish economic report from China. The country’s inflation data for September revealed that consumer prices rose by just 0.4%, falling short of the 0.6% economists had anticipated. This marks the slowest price increase in three months, according to a report from Reuters.
Although lower consumer prices are typically seen as positive for oil markets, experts are interpreting China’s sluggish inflation growth as a sign of weakening demand that could continue to deteriorate as inflation remains low.
“China is under persistent deflationary pressure due to weak domestic demand. The recent change in fiscal policy, indicated during Saturday’s press conference, could help address these issues,” the chief economist at Pinpoint Asset Management in Hong Kong told Reuters.
As of 11:40 a.m. ET, Brent crude futures for December delivery were trading at $77.24 per barrel, reflecting a 1.8% drop. West Texas Intermediate (WTI) crude was trading at $74.02 per barrel, down 2.1%. This is a significant fall from last Monday, when Brent hit a two-month high of $81.12 and WTI reached $77.91 per barrel. That rally had been fueled by speculation that Israel might launch an attack on Iran’s oil facilities.
In addition to China’s economic concerns, aggressive short-selling has also contributed to the drop in oil prices. For the first time, short positions on Brent have surpassed long positions. Analysts at Standard Chartered pointed out that once the market adjusts for the current price undershoot, the response to geopolitical tensions, particularly threats against Iranian energy infrastructure, has been notably muted. The bank highlighted that Brent’s front-month settlement on October 7 was lower than on the same day in 2021, 2022, and 2023. Recent price levels have merely returned to where they were in late August.
Despite these developments, the overall sentiment in the oil market has remained predominantly bearish over the past three months. Many traders remain willing to aggressively short oil when daily news and market momentum allow.
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