The Chinese market continues its downward spiral, bringing global oil prices down.
Crude prices dropped on Monday and Tuesday as a swath of bearish data was released earlier this week. From China’s deflationary spiral to Israel’s de-escalation, oil prices are not expected to rise back any time soon.
Brent, the global benchmark of oil, dropped 4.17% on Monday to $74.23 per barrel. The West Texas Intermediate fell by 4.13% to $70.78.
Last week, oil markets panicked over a possible hike in crude prices as Israel-Iran tensions reached a new high. On October 1st, Iran launched a large-scale missile attack against Israel, the second of its kind this year.
Following the attack, which caused one Palestinian death but no Israeli casualties, Tel Aviv pledged a serious response. For several days, it was believed Israel would target Iran’s oil and nuclear facilities.
The destruction of the Iranian oil fields would have disrupted roughly 4% of the global oil market. In a “worst-case scenario” situation, Iran would have responded by blocking the Hormuz Strait, where over a third of the world’s oil passes through.
Blocking the Hormuz Strat could have brought global oil prices to $200 per barrel, analysts say.
US President Joe Biden told Israeli Prime Minister Benjamin Netanyahu not to strike Iran’s energy facilities. On Tuesday, Israel announced it would not attack the Iranian oil fields.
China’s deflation
Another factor bringing oil prices down is the increasingly weak demand in the Chinese market.
China is the world’s largest oil importer, and its oil demand is often the most consequential factor determining global prices.
Chinese inflation in September rose by 0.4%, far below the 0.6% expected by Reuters-polled economists. Most of the world’s advanced central banks consider 2% a healthy level of inflation for a growing economy.
Deflation in China persisted since the COVID-19 pandemic and the nationwide real estate crisis. Both events depressed Chinese consumer confidence, which in turn impaired the nation’s growth.
China is also a leading producer of renewable and nuclear energies, increasingly absorbing them into their energy mix.
“China faces persistent deflationary pressure due to weak domestic demand. The change of fiscal policy stance as indicated by the press conference yesterday (Saturday) would help to deal with such problems,” the chief economist of Hong Kong-based Pinpoint Asset Management told Reuters.
Oil traders, however, do not believe China’s fiscal stimulus will be enough to revive demand for the world’s second-largest economy. The Organization of Petroleum Exporting Countries (OPEC), which includes Iran, lowered its forecast for global oil growth in 2024 to 1.9 million barrels from 2 million.
