The price of New York crude oil rebounded following the Chinese government’s announcement of interest rate cuts and a massive economic stimulus package. According to Yonhap News, this rebound reflects growing optimism about the economic recovery in China, the world’s largest importer of crude oil.
West Texas Intermediate crude oil for November delivery traded at $71.56 per barrel, up $1.19 (1.69%) from the previous trading day. During the same period, the global benchmark Brent crude price for November delivery rose by $1.27 (1.72%), closing at $75.17 per barrel.
The Chinese government’s announcement, which included interest rate cuts and a large-scale monetary stimulus plan, boosted investor sentiment in the oil market. This fueled expectations that China’s economic recovery would drive higher oil demand.
The People’s Bank of China (PBOC) announced a 50 basis point reduction in the reserve requirement ratio and plans to lower the benchmark lending rate, medium-term lending facility rate, and mortgage rates. PBOC Governor Pan Gongsheng stated that the reduction in the reserve ratio would inject 1 trillion yuan into the financial market, with the possibility of additional rate reductions later this year. He also noted that the MLF rate would decrease by 30 basis points while the LPR would drop by 20 to 25 basis points. The policy rate for the 7-day reverse repurchase agreements would also be reduced from 1.7% to 1.5%.
This stimulus package is China’s largest since the COVID-19 pandemic and focuses on boosting the manufacturing and real estate sectors. This has led to a surge in demand for raw materials, leading to a 2.6% increase in copper prices.
Market analysts expect these measures to have a positive effect on oil prices. Tony Sycamore, a market analyst at IG, stated, “The oil market is awaiting further easing measures from the Chinese government in response to the economic slowdown, and this stimulus package will help eliminate the downside risks that have persisted.”
However, some experts caution that additional fiscal measures may be necessary to increase oil prices. Kelvin Wong, a senior market analyst at OANDA, noted that expansionary fiscal measures that aim to boost domestic demand are needed alongside China’s monetary easing policies.
At the same time, concerns are growing about potential supply disruptions due to hurricanes threatening major U.S. oil facilities, raising supply concerns. The National Hurricane Center has warned that a tropical storm in the Caribbean could expand into a major hurricane named Helene and make landfall in the Gulf of Mexico. In response, major oil companies like BP, Chevron, and Shell have begun evacuating personnel from their Gulf facilities and have halted some operations.
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