November 13, 2024 (Globalinvestorideas.com Newswire) Globalinvestorideas.com, a go-to platform for big investing ideas releases market commentary from Samer Hasn, Senior Market Analyst at XS.com.
Crude oil prices are heading towards consolidation today after a series of losses extended throughout the past three sessions, as both major benchmarks, Brent and West Texas Intermediate, rose by about 0.4%.
The previous decline in oil prices came in light of the Organization of the Petroleum Exporting Countries (OPEC)’s reduction in its November report on its expectations for growth in demand for crude for the current and next year. This has exacerbated the downward pressure on crude prices, which comes from concerns about the future of Chinese economic growth in light of weak market sentiment about the effectiveness of support packages, in addition to the potential impact of the escalation of the trade war with Donald Trump’s return to the White House.
On the other hand, if we look deeper into the recent reports, we see mixed signals about the future of the Chinese economy, whether regarding the ability of support packages to stimulate growth or regarding the next steps that the incoming Republican administration of the United States will take.
Despite the negative reaction to the successive announcements of stimulus measures announced by the Chinese government over the past weeks, OPEC expects these support packages to benefit the economy in the medium term, which prompted the organization to raise its economic growth forecast for next year, paving the way for restoring the growth target of 5%.
This comes despite the report indicating that weak refinery activity has negatively weakened market optimism, in addition to the fact that the stimulus measures did not immediately boost investor sentiment. This is in addition to pessimism due to the slowdown in economic activity in the Eurozone, as the report indicated.
With that, the organization lowered its forecast for crude demand from China to 310,000 barrels per day next year, down from 410,000 in the previous report.
The potential impact of Chinese stimulus measures remains controversial. For example, the Wall Street Journal Editorial Board believes that only consumer-oriented support can stimulate growth, which China may not find its way to without getting rid of its high debt burden – as discussed in the launch of a $1.4 trillion debt swap program last week – in addition to easing restrictions on companies and entrepreneurs.
Another aspect that has worried oil markets and exacerbated the recent price declines is the potential further weakness that the Chinese economy may be exposed to with the return of Trump next January with his threat to expand the trade war by imposing huge tariffs of 60%.
However, reports from The Wall Street Journal may help alleviate these concerns in oil markets. A report from The Journal, citing people close to the decision-making circle in China, mentioned plans being studied to compensate for the damage that may be inflicted on Chinese exports to the United States by flooding the markets of its allies.
The report also talked about Chinese officials moving to increase their courtship of prominent businessmen in the US in the front of the expected hardline trend towards China, and among those targeted is Elon Musk. Moreover, China may see Trump’s arrival as an opportunity to strengthen its relations with other partners by taking advantage of the political and social chaos in the US and the turmoil in relations with its allies. Those close to the decision-making process in China describe Trump as an erratic dealmaker.
The Journal also talked in another report citing Chinese advisers that officials are relieved with the names coming into the Trump administration so far. This comes in the context of talk about the arrival of Marco Rubio, Mike Waltz and Robert Lighthizer and the exclusion of Mike Pompeo and Robert O’Brien.
While these names are critics of China, their appointment still leaves room for dialogue, according to what Yun Sun, director of the China program at the Stimson Center, said, as quoted by The Journal.
Therefore, the re-ignition of the trade war between China and the United States may not be inevitable, which may provide some comfort to the oil market.
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