Oil Prices Tumble on Doubts About China's Economic Reforms

5 Mar 2024 , 10:43 AM

Tuesday saw a second day of declines in oil prices as investors worried about decreased demand were unimpressed by China’s promises to revamp its economy, the world’s largest petroleum importer, despite the country’s slowing growth since the COVID outbreak. 

May Brent futures dropped 3 cents to $82.77 per barrel, while May U.S. West Texas Intermediate (WTI) dropped 11 cents to $78.63.

On Monday, WTI ended the day down $1.24 at $78.74 a barrel, while Brent finished the day 75 cents lower at $82.80 a barrel.

According to an official work report released on Tuesday as part of this week’s National People’s Congress meeting, China pledged to ‘transform’ its economic development model and curb industrial overcapacity while setting an economic growth target for 2024 of roughly 5%, similar to last year’s goal and in line with analysts’ expectations. 

Reaching that aim will be more difficult this year than in 2023, which profited from the beneficial base effect of a COVID-hit 2022, according to analysts. This might negatively impact investor sentiment. However, achieving that goal should raise gasoline consumption. 

China also said in the work report that it would tighten controls over the use of fossil fuels while simultaneously stepping up the discovery and development of oil and natural gas resources. 

Although uncertainties 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 global economy and rising supply outside the group, the Organization 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.

As rising spot prices indicate, the physical oil market has begun to tighten, partly because of supply disruptions, according to news reports. 

A preliminary Reuters poll on Monday predicted that U.S. crude oil stocks rose last week, but distillates and gasoline stockpiles were predicted to have decreased. 

In the week leading up to March 1, crude stocks increased by almost 2.6 million barrels, according to the average estimate of four analysts surveyed by Reuters. 

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