Crude Oil Pressured by Weak China Demand, Rising Dollar, and Oversupply Fears Summary

Key Takeaways:

• Crude oil prices show minor declines as economic concerns in China weigh on global demand outlooks.
• Mixed market reactions to U.S. policy shifts and China's debt swap stimulus.
• Geopolitical tensions impact market sentiment, adding volatility to global petroleum prices.

Crude Oil Prices Slide Slightly Amid Global Economic Concerns

• January Brent oil futures were at $71.77, down by 0.08 per cent, and December crude oil futures on WTI (West Texas Intermediate) were at $67.97, down by 0.10 per cent.
• November crude oil futures were trading at ₹5745 on Multi Commodity Exchange (MCX) during the initial hour of trading on Tuesday against the previous close of ₹5762, down by 0.30 per cent, and December futures were trading at ₹5755 against the previous close of ₹5767, down by 0.21 per cent.

Petroleum Demand and Supply

• On Friday, China announced a debt swap package to support local governments in the coming years. This $1.6-trillion (10 trillion yuan) package did not enthuse the market as market players felt it would not provide direct support to the economy.

• China did not announce any direct fiscal measures to help the property market and private consumption in that country. This lack of direct fiscal support measure to boost the economy created apprehensions over the demand for commodities such as crude oil in one of the major consumers in the world.

• The commodities sector has been left trailing by the broader risk-on sentiment across financial markets since the Trump election win, with oil hit by fears that policies from the new administration could stall global demand growth and boost US energy output.

• Concerns that a tariff-led trade world will damage a fragile global economy has rocked confidence in the oil sector, although any boost to US oil production will likely be determined by prices.

• Meanwhile, the dollar continues to rise on speculation of policy changes following the US election, as the USD index consolidated at four-month highs above 105.50 points.

Geopolitical Tensions: Impacts on Global Oil Sentiment and Trade

• Sentiment was further dampened after Beijing disappointed with its latest stimulus plans, while GDP and oil demand growth remain below par.

• The Trump administration has also pledged to support ceasefire plans on major conflicts, but over the weekend Russia and Ukraine exchanged the largest drone attacks against each other since Moscow's invasion.

• Meanwhile, Middle East peace talks faced a setback after Qatar suspended its efforts to mediate a ceasefire and hostage deal between Israel and Hamas.

• On the plus side for oil, a Republican administration could step up purchases of crude for the Strategic Petroleum Reserve, although will first need to find additional funding from Congress when it takes power in January.

Expert Opinion: Petroleum Price Projections and Key Levels

• It is anticipated that crude oil remains under fresh selling pressure, with open interest rising by 9.59% to 13,442 contracts. Support is currently at 5,687, with a potential dip to 5,611 if broken.
• Resistance is now at 5,900, with a further move likely testing 6,037 if breached. Oil held the biggest drop in two weeks on a soft demand outlook in China, a stronger US dollar, and concerns the market may flip to oversupply.