Oil prices started the week on a strong note, climbing after Chinese banks introduced additional stimulus measures aimed at driving economic growth. As of 1:53 p.m. ET, Brent crude for December delivery increased by 2.01%, reaching $74.53 per barrel, while WTI crude for November delivery rose 2.61%, trading at $71.03 per barrel.
In recent weeks, China has been ramping up efforts to stimulate its economy. Last month, the People’s Bank of China (PBOC) cut the reserve requirement ratio for banks by 50 basis points and reduced the benchmark seven-day reverse repo rate by 20 basis points. This was the most aggressive economic stimulus since the COVID-19 pandemic.
On Monday, Chinese banks expanded these efforts by lowering their benchmark lending rates more than expected. The one-year loan prime rate (LPR) was reduced by 25 basis points, from 3.35% to 3.10%, surpassing the forecasted 20-bp cut. The five-year LPR was also lowered by 25 basis points, from 3.85% to 3.60%, higher than the anticipated 20-bp reduction. These cuts are expected to stimulate economic growth and increase energy demand in China, the world’s largest oil importer.
China’s weakened oil demand has been a key factor in the bearish sentiment surrounding oil markets. According to Bloomberg, China’s total oil demand from January to September this year has fallen by 3.8% year-on-year to 13.99 million barrels per day (bpd).
However, last week saw oil prices drop again following a negative economic report from China. The country’s inflation data for September showed consumer prices rose by just 0.4%, falling short of economists’ expectations of a 0.6% increase. This marked the slowest inflation rate in three months, according to Reuters. While lower consumer prices are typically seen as positive for oil prices, experts interpret China’s slowing inflation as a sign of weak demand, which is likely to continue as inflation remains subdued.
“China faces persistent deflationary pressure due to weak domestic demand. The change in fiscal policy stance, as indicated by the press conference on Saturday, will help address these challenges,” the chief economist of Pinpoint Asset Management, based in Hong Kong, told Reuters.
These ongoing economic concerns in China continue to influence global oil markets, with analysts closely watching for further developments.
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