Oil prices drop amid concerns of inadequate Chinese fiscal stimulus package
Date
9/25/2024 9:46:34 AM
(MENAFN) Oil prices fell on Wednesday amid concerns that economic stimulus measures announced by China would not be enough to sustain economic growth, and rising fears of a recession in the United States. The international benchmark brent crude dropped by 0.40 percent, reaching USD74.17 per barrel at 10:47 a.m. local time (0747 GMT), down from the previous session's close of USD74.47. Similarly, the US benchmark West Texas Intermediate (WTI) fell by 0.52 percent, trading at USD71.19 per barrel after closing the prior session at USD71.56.
China, the world's largest importer of crude oil, saw its central bank, the People's Bank of China, announce measures to stimulate its slowing economy on Tuesday. However, doubts persist about the effectiveness of these incentives in significantly boosting economic activity. The lack of confidence in China's recovery has created uncertainty in the oil market, putting downward pressure on prices. As the global economy grapples with economic challenges, the effectiveness of China's stimulus package remains a key factor in influencing oil demand.
In the US, new economic data raised additional concerns about the possibility of a recession in the world’s largest oil-consuming country, further reducing demand expectations in the market. The Conference Board Consumer Confidence Index, a key measure of consumer sentiment, fell by 6.9 points to 98.7 in September, well below market expectations. This marked the largest drop in consumer confidence since August 2021, driven by growing concerns over the state of the labor market. In addition, the Richmond Fed Manufacturing Index for September came in at minus 21, further underscoring the slowdown in the US economy. Meanwhile, housing prices, as measured by the S&P CoreLogic Case-Shiller US National Home Price Index, rose 5 percent year-on-year in July, but the pace of the increase has slowed.
Despite these downward pressures on oil prices, uncertainty surrounding the US Federal Reserve's upcoming moves on interest rates limited further price declines. There is widespread expectation that the Fed will cut interest rates by 75 basis points before the end of the year, with estimates of a 50 basis point cut in November currently at 59 percent. Any reduction in US interest rates would likely weaken the US dollar against other currencies, which in turn could boost oil demand by making crude cheaper for buyers using other currencies. However, until more clarity emerges on the Fed's direction, the market remains in a state of cautious anticipation.
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