Oil continues to decline as investors remain unimpressed by China’s economic reforms

By Georgina McCartney

(Reuters) –On Tuesday, oil prices dropped for a second day as investors worried about reduced demand were unimpressed by China’s promises to revamp its economy amid stalling development since the COVID outbreak.

By 07:57 GMT, May Brent futures were down 32 cents, or 0.4%, to $82.48 a barrel, while May U.S. West Texas Intermediate (WTI) was down 41 cents, or 0.5%, to $78.33. For the fifth session in a row, Brent was expected to fall on Tuesday. 

China announced that it would “transform” its model of economic development and reduce industrial overcapacity. It also set an economic growth target of about 5% for 2024, which is in line with analysts’ predictions and comparable to the objective from the previous year.

According to analysts, China in 2023 benefited from the advantageous base effect of a COVID-hit 2022, making it difficult to accomplish that target this year, which, if reached, would likely enhance fuel consumption. This may potentially have a negative impact on investor mood.

The largest importer of petroleum in the world promised to tighten controls over the use of fossil fuels while simultaneously stepping up efforts to explore and develop natural gas and oil resources.

Although issues about the future of Chinese demand drove down prices, the price of petroleum was supported by supply issues such as major producers cutting back on their output and geopolitical concerns over the Israel-Gaza conflict.

In an effort to maintain prices in the face of worries about the global economy and rising supply outside the group, the Organisation of the Petroleum Exporting Countries and its allies, or OPEC+, decided to extend their voluntary oil output restrictions of 2.2 million barrels per day (bpd) into the second quarter on Sunday.

 

Nonetheless, a preliminary Reuters poll on Monday predicted that U.S. crude oil stocks rose by roughly 2.6 million barrels last week, while distillates and petrol stockpiles were predicted to have decreased.

“The market has been rising in the last few weeks as the fundamentals have improved.

A note from ANZ analysts on Monday stated, “Rising spot prices indicate the physical market has begun to tighten amid a host of other supply side disruptions.”