The prices of crude oil dropped further in the global commodities market on Tuesday as Chinese demand is expected to remain weak, supported by strengthened U.S dollar.
The market concerns that China’s stimulus plan might not sufficiently boost the economy of the world’s top oil importing country, fueling oversupply concerns. Brent fell to $71.78 per barrel while the US benchmark West Texas Intermediate declined to $67.94 per barrel.
China approved a bill to increase the quota for issuing special debt bonds to local governments with debt problems to 6 trillion yuan ($840 billion) for three years.
Experts state that the latest stimulus plan announced by the Chinese government does not meet the expectations of investors, while market players question how the new stimulus package will affect oil prices and economic growth.
In its latest report, OPEC revised its forecast for global oil demand for this year downwards by 106,000 barrels per day (bpd) compared to its previous forecast. The decline in demand is expected to be mostly due to China.
Oil prices came under further downward pressure yesterday. ICE Brent settled almost 2.8% lower on the day, falling below $72/bbl.
US dollar strength – an ongoing theme since the US election – has provided strong headwinds not just to the oil market but also to the broader commodities complex, ING said in a note today.
In addition, prompt time spreads for Brent and WTI have collapsed recently, moving closer to contango, suggesting a better-supplied physical market, analysts added.
