Oil Begins the Week with a Decline: Weak China Data and Strong Dollar Take Their Toll

Oil prices started the new week with a decline due to disappointing stimulus plans from China and a strengthening US dollar. Brent crude oil futures fell by 1.5% to $72.77, while US WTI crude oil dropped by 1.7% to $69.17. Both benchmarks had lost over 2% the previous Friday. The strengthening dollar, which exerts pressure on the prices of commodities priced in dollars, is in focus ahead of US consumer inflation data and Fed announcements this week. A stronger dollar can make commodities more expensive for other currencies, reducing demand.

Concerns about China's economic weakness In China, the slowest rise in consumer prices in four months and a continued decline in the producer price index have raised deflation fears. Some commentators continue to believe that China’s potential for increasing oil demand or stimulating imports is low. It is highlighted that the market is refocusing on fundamentals following the US presidential elections, and this is thought to continue putting pressure on prices.

Effects of the Rafael storm are diminishing The easing of concerns over supply disruptions from the Rafael storm in the Gulf of Mexico has led to a softening in oil prices. It was reported that some of the oil and gas production in the US Gulf of Mexico was shut down due to the storm. Analysts do not anticipate major changes in their 2025 production forecasts but carry worries that oil and gas production in the US could increase under a new Trump administration. Tim Evans from Evans Energy stated that producers should act cautiously in increasing US supply while OPEC+ is attempting to raise its production targets.

OPEC sanctions and the overall outlook for the oil market While Trump's promise to increase import tariffs obscures the global economic outlook, expectations that OPEC producers might tighten sanctions on Iran and Venezuela could partially reduce global oil supply, contributing to an increase in oil prices last week. These expectations have led to mixed signals in the markets.