Amid recent sluggish Chinese economic data and uncertainty surrounding potential stimulus measures, oil markets have lost momentum, dragging energy stocks down in European markets.
Crude oil prices fell sharply following reports that Israel may refrain from targeting Iran’s oil or nuclear facilities in any potential retaliatory measures, despite Prime Minister Benjamin Netanyahu indicating Israel’s independent decision-making regarding its response. The news came after discussions between key leaders, though no formal statement was made.
The Brent December contract fell by 4.14% to $74.25 per barrel, while the West Texas Intermediate (WTI) November contract slumped 4.4% to $70.58 per barrel on Tuesday. Both benchmarks fell to their lowest levels since 2 October, one day before Iran’s ballistic missile attack on Israel, despite a slight rebound in the Asian session on Wednesday.
For now, oil markets have erased most of the gains triggered by the escalation of Middle East tensions in early October, as economic concerns overshadow geopolitical developments. The OPEC group also cut its forecast for global oil demand growth in 2024 and 2025, largely due to slowing demand from China.
Amid recent sluggish Chinese economic data and uncertainty surrounding potential stimulus measures, oil markets have lost momentum, dragging energy stocks down in European markets. Shares of major oil and gas producers, including TotalEnergies, BP, and Shell, all dropped between 3% and 5% on Tuesday.
Oil demand weakens amid China’s economic struggles
A report from the International Energy Agency (IEA) indicated that oil demand is expected to grow at only half the pace in 2024 and 2025 compared with the years 2022 and 2023, primarily due to a decline in Chinese demand.
The report stated: “China underpins the deceleration in growth, accounting for around 20% of global gains both this year and next year, compared to almost 70% in 2023.”
On Tuesday, OPEC+ also downgraded its oil demand forecast for 2024 and 2025. The group now expects oil demand to rise by 1.93 million barrels per day in 2024, down from the previous estimate of 2.03 million barrels per day. The downgrade was also attributed to China’s transition towards green energy.
China recently reported weaker-than-expected inflation for September, followed by disappointing export and import data earlier this week.
While the country introduced a broad stimulus package in late September, which temporarily buoyed crude prices, the government has not yet provided detailed measures to boost business confidence.
The market’s focus is now on China’s housing minister’s press briefing on Thursday and several key economic indicators due on Friday, including third-quarter GDP.
However, these events may not significantly alter the fundamentals of the oil market, as any rebound driven by policy measures is likely to be temporary until the full impact can be realised.
European energy sector downturn
Major energy stocks fell sharply on Tuesday amid falling crude prices, with TotalEnergies tumbling 4.8%, Shell sliding 3.4%, and BP declining 3.9%.
The energy sector is one of the worst performers in European markets, down 2.7% from last week and 6% year-to-date, compared with an 8.8% rally in the Euro Stoxx 600 Index.
Energy firms face several challenges, including slowing demand from China, competition from US oil producers, and regulatory hurdles in the European Union.
Just a week ago, BP announced it would scrap its plans to halt oil and gas production by 2030, as the British firm scales back its energy transition efforts in an attempt to regain investor confidence. Local competitor Shell has also reduced its focus on renewable energy.
However, a potential Trump victory in the forthcoming US presidential election could reshape the global energy market landscape. The former US president has vowed to revive fossil fuel production and roll back policies promoting green energy.