Oil prices dip on disappointing China stimulus measures

Oil prices dipped on Thursday, with WTI price dropping from $70.8 to $69.9 per barrel. If oil prices retreat, they may encounter support near $68.8 per barrel, while resistance may be found near $71.7 per barrel.

Oil prices gained strength earlier in the week on reports of further economic stimulus measures in China, which is the world's largest oil importer. Reports that Chinese authorities have agreed to issue over $411 billion worth of special treasury bonds next year boosted oil prices briefly. Oil prices dipped later on Thursday, however, as markets had time to digest the news. 

Oil prices are kept in check by high central banks’ interest rates. The US Federal Reserve cut interest rates by 25 basis points last week to a target range of 4.25% to 4.50%. However, a 25-basis point rate cut had been fully priced in, and market participants focused mostly on the Fed’s forward guidance.

In his press conference after the policy meeting, Fed Chair Jerome Powell delivered a rather hawkish message, emphasizing the need to be cautious about further rate cuts. Powell stated that the Fed’s approach will remain data-driven and hinted that the pace of future rate cuts will be slower. In addition, the Fed’s latest dot plot indicated that only two rate cuts will take place in 2025, down from four projected in September.

OPEC cut oil demand forecasts for 2024 and 2025 for the fifth month in a row in December. OPEC has cut 2024 demand growth by 210K barrels a day to 1.6 million barrels a day. The organization estimates that oil demand will drop by an additional 90K barrels per day into 2025. 

OPEC+ has announced that it will extend its voluntary production cuts until the end of the first quarter of 2025, however. Oil prices have been under pressure and the cartel is limiting production in an attempt to raise oil prices. 

Meanwhile, concerns of a broadening conflict in the Middle East have been boosting oil prices in the past year. The civil war in Syria has been rekindled, further destabilizing the region. The Syrian rebel army is currently in charge and political instability in Syria is reigniting geopolitical risks, boosting oil prices. Tensions between Israel and Lebanon have cooled after the ceasefire deal, but hostilities between Israel and Hamas continue in the Gaza area. In addition, the situation between Russia and Ukraine remains critical, with Russia threatening to use nuclear missions against Ukraine.

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Written by:
Myrsini Giannouli

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