Chinese Stimulus Plan, Tight Supply Revive Oil Market

By Adedapo Adesanya

The oil market moved up by over 2 per cent on Monday on tightening supply as hopes for Chinese stimulus measures boosted the ecosystem, with Brent futures adding $1.67 or 2.1 per cent to settle at $82.74 a barrel, and the US West Texas Intermediate (WTI) futures expanding by $1.67 or 2.1 per cent to $78.74 per barrel.

Both crude benchmarks have already climbed for four weeks in a row, with supplies expected to tighten due to cuts from the Organisation of the Petroleum Exporting Countries (OPEC) and allies like Russia, a group known collectively known as OPEC+.

Tightening conditions comes as Saudi Arabia’s oil output cuts also impacted the market.

Strong demand and worries about supply issues also boosted US gasoline (petrol) futures to their highest level since October 2022.

Market analysts also pointed out that the rally in crude oil is impressive as it occurs, as Europe is looking very weak right now.

This is as the US, the world’s largest economy, slowed down after business activities eased to a five-month low in July, dragged down by slow service-sector growth, but falling input prices and slower hiring indicate the US Federal Reserve could be making progress on important fronts in its bid to reduce inflation.

In China, many traders look forward to the government introducing stimulus measures to accelerate the country’s growth rate. This would boost already strong oil demand in the Asian giant, countering the effect of recession fears.

China’s top leaders pledged on Monday to step up policy support for the economy amid a tortuous post-COVID recovery, with a focus on boosting domestic demand.

In the euro zone, business activity shrank much more than expected in July as demand in the bloc’s dominant services industry declined while factory output fell at the fastest pace since COVID-19 first took hold.

The gain in the market comes ahead of central bank updates due in the US and Europe as traders calculate the chances for more rate hikes down the road.

The next US Federal Reserve meeting will take place on Tuesday and Wednesday.

However, fears of more rate hikes and the possibility of a recession as a result of these hikes have held back many oil traders from buying the commodity even though demand has been stable and robust while supply has been constrained.