China's Fiscal Stimulus and Oil Inventory Impact on Prices

Key Highlights:

• Price Trends: Brent crude rose to $73.71, and WTI to $70.21, supported by Chinese stimulus optimism and U.S. inventory declines.
• China’s Fiscal Stimulus: A $411 billion bond issue aims to revive China’s economy, pivotal for global oil demand.
• U.S. Inventory Movements: Crude stocks fell by 3.2 million barrels, but gasoline and distillate inventories showed mixed trends.
• Market Outlook: China’s weak recovery and concerns over future demand despite stimulus measures, oil prices remain constrained.

Oil Prices Show Modest Gains Amid Holiday Trading

• Oil prices edged higher on Thursday in thin holiday trading, driven by hopes for additional fiscal stimulus in China, the world's biggest oil importer, while an anticipated decline in U.S. crude inventories also provided support.
• Brent crude futures rose 13 cents, or 0.2%, to $73.71 a barrel by 0650 GMT. U.S. West Texas Intermediate crude was at $70.21 a barrel, up 0.2%, or 11 cents, from Tuesday's pre-Christmas settlement, Reuters reported. MCX Crude oil prices opened at 5842 with a gain of 0.40%. 

China's Stimulus Measures Aim to Revive Oil Demand

• Chinese authorities have announced plans to issue a record 3 trillion yuan (approximately $411 billion) in special treasury bonds next year as part of an intensified fiscal strategy to stimulate a struggling economy, according to Reuters. 
• Additionally, local officials are now permitted to expand investments using key government bonds and simplify approval processes, allowing projects that are not explicitly restricted by a cabinet-published list. 
• This approach aims to enhance the utilization of public funding for economic growth, as outlined in a government document released on Wednesday.
• Given its status as the largest oil importer, China’s economic performance significantly influences global oil prices. A thriving Chinese economy typically leads to increased demand for crude oil, necessary to fuel industries, transportation, and other energy-intensive sectors, often resulting in higher oil prices.
• However, China’s economic recovery following the COVID-19 pandemic has encountered several obstacles, such as declining consumer confidence, weak export demand, and a troubled property sector. In response to these challenges, Beijing has rolled out various stimulus measures designed to revive economic growth.

U.S. Inventory Data Supports Crude Market Stability

• Reports indicate that U.S. oil inventories decreased by 3.2 million barrels during the week ending December 20, according to data from the American Petroleum Institute (API). 
• Gasoline inventories rose by 3.9 million barrels, while distillate inventories, which include diesel and heating oil, fell by approximately 2.5 million barrels. These figures precede data from the Energy Information Administration, expected on Friday.
• A Reuters poll conducted on Tuesday suggested that crude oil inventories likely dropped by around 1.9 million barrels for the week ending December 20, with gasoline stocks anticipated to decline by 1.1 million barrels and distillate inventories by 0.3 million barrels. 
• Oil prices saw a modest uptick on Tuesday, remaining within a narrow trading range as traders considered the potential for a supply surplus and anticipated softer demand in the year ahead.
• February Brent futures increased by 0.4 percent to $72.91 a barrel, while West Texas Intermediate (WTI) crude futures also rose by 0.4 percent, reaching $69.51 a barrel.
• In 2024, both Brent and WTI prices have decreased by about 5 percent, primarily due to ongoing concerns regarding falling demand in China. The world’s largest oil importer has seen a decline in oil imports throughout the year, struggling with sluggish economic growth. 
• Although plans for increased fiscal spending and stimulus measures have been outlined for the upcoming year, markets are still waiting for more concrete details.

Expert Opinion: Challenges and Stimulus-Driven Recovery

• Expectations that fossil fuel production and demand will expand after Donald Trump takes office as U.S. President next month are also bolstering oil prices. 
• An anticipated decline in U.S. crude and fuel inventories was also supporting the market. Crude is headed for a modest annual drop, although prices have been confined to a narrow range since mid-October.