Oil Prices Drop as Investor Confidence Weakens Over China’s Economic Woes
Oil prices fell sharply on Monday, erasing last week’s gains as concerns about China’s economic outlook persisted and geopolitical tensions loomed over the market. Despite China’s recent stimulus measures, investors remained skeptical, while fears of potential Israeli attacks on Iran’s oil infrastructure kept markets on edge, according to Reuters.
By 0902 GMT, Brent crude futures dropped $1.35, or 1.7%, to $77.69 per barrel, while U.S. West Texas Intermediate (WTI) crude futures decreased by $1.32, or 1.75%, to $74.24 per barrel. Last week, Brent had gained 99 cents, while WTI rose by $1.18.
China’s economy showed deeper deflationary pressures in September, as revealed by official data on Saturday. A press conference on the same day left market participants uncertain about the scope and impact of any forthcoming stimulus efforts from the Chinese government, the world’s second-largest economy.
“China’s monetary stimulus measures failed to stimulate, and the weekend’s pledge from the finance ministry to borrow more was long on clichés and phrases but short on reassuring and convincing details,” said Tamas Varga of oil brokerage PVM to Reuters. He further noted that “deflationary pressure on producer prices remained entrenched amidst lax consumer demand.”
The latest data from China’s National Bureau of Statistics showed that the country’s consumer price index fell below expectations, while the producer price index recorded its fastest drop in six months, down 2.8% year-on-year. These figures fueled worries about China’s economic recovery, overshadowing other factors influencing oil markets.
Geopolitical concerns in the Middle East added to the uncertainty. Investors were particularly cautious about a potential disruption in oil production following possible Israeli responses to Iran’s missile attack on October 1. On Sunday, the U.S. announced plans to send troops to Israel and deploy an advanced anti-missile system to bolster the country’s air defenses.
“General feeling is that markets are treading water ahead of the Israeli response to Iran, with no real direction for prices until the situation in the Middle East is clearer,” commented Ashley Kelty, an analyst at Panmure Liberum.
The U.S. has reportedly been urging Israel to adjust its response to avoid a broader conflict in the region. President Joe Biden has publicly opposed an Israeli strike on Iran’s nuclear facilities and expressed concerns over potential attacks on Iran’s energy infrastructure, aiming to prevent an escalation that could impact global oil supplies.
