Oil Prices Slump as Data Suggest Weak Demand in China, US
Crude oil prices slumped in the global commodities market on Thursday due to a weak demand outlook in China, and the United States. The two leading oil consumers are expected to see lower demand on the back of a slowdown in economic performance.
The US Energy Information Administration (EIA) indicated a build in US strategic petroleum reserves put downward pressure on prices. Brent slumped to $72.33 per barrel while the US benchmark West Texas Intermediate dipped to $68.46 per barrel.
China’s economic growth has shown signs of slowing, with the country reporting a 4.8% expansion over the first nine months of 2024, falling short of its 5% annual target. The official Purchasing Managers’ Index (PMI) for China, a key indicator of activity in the services sector, showed further signs of stagnation in November after a brief recovery in October.
The PMI dropped by 0.5 points month-on-month, signaling renewed pressure on economic activity. The non-manufacturing PMI, which includes the services sub-index, remained relatively flat at 50.1, indicating a lack of significant momentum in the sector.
Weak domestic demand and ongoing deflationary pressures are continuing to negatively impact China’s economic growth prospects, further dampening oil demand expectations. In the US, the Institute for Supply Management (ISM) reported a 3.9-point drop in its services sector PMI, falling to 52.1 in November, below market expectations.
US factory orders also rose by a modest 0.2% in October, underperforming forecasts.
These signs of economic deceleration in the world’s largest oil consumer added to bearish sentiment in the oil market. EIA data revealed a rise in US strategic petroleum reserves, which increased by approximately 1.4 million barrels to 391.8 million barrels last week.
Gasoline inventories also climbed by 2.4 million barrels to 214.6 million barrels, further indicating weakening demand and supported downward price movement. Meanwhile, rising expectations that the US Federal Reserve (Fed) might cut interest rates this month limited further price falls.
On a more positive note, Federal Reserve Chairman Jerome Powell’s remarks suggested that the Fed has room to adjust interest rates, though limited scope for further cuts could temper the extent of price declines.
Following Powell’s speech, the probability of a 25-basis-point rate cut at the Fed’s December 18 meeting increased to 78%. Meanwhile, investors are closely watching the upcoming decision by OPEC+ on oil production cuts for the early months of 2025.
The group is expected to extend its current supply cuts into the first quarter of the year, which could help support oil prices in the near term.
