Oil Dips On Disappointing China Stimulus and Waning Hurricane

Meanwhile, analysts continue to debate what impact Trump will have on the energy sector: File Image/Pixabay

Hurricane Rafael failing to live up to its media hype contributed to the energy sector's bearish mood, which on Friday was also kindled by the worry that China's economic stimulus would not support oil demand.

West Texas Intermediate settled down $1.98 at $70.35 per barrel, and Brent settled down $1.76 to $73.87 per barrel.

Alex Hodes, analyst at StoneX, told clients in a note, "Threats of supply outages due to Hurricane Rafael are subsiding as the storms shifts to circling in the center of the Gulf of Mexico for the next five days or so"; this was after over 23 percent of oil production in the Gulf was shut down as a precaution against the storm.

As for Beijing announcing a $1.4 trillion debt package to ease local government financing strains and stabilize growth, Giovanni Staunovo, analyst at UBS, said this would do little to stimulate demand.

The initiative was intended to repair municipal balance sheets as a longer-term objective, rather than directly inject money into the economy; however, China's finance minister promised that more stimulus was coming.

Meanwhile, political pundits think China's recovery is even more questionable considering that the re-election of Donald Trump as U.S. president will likely lead to tariffs in excess of 60 percent on all Chinese goods – which has already caused some factory relocation to Southeast Asia and other regions.

As for the impact a Trump presidency will have on the energy sector overall, Robert Yawger, director of the energy futures division at Mizuho Securities, noted that "Crude oil is trying to figure out if Trump is good or bad for crude oil, with volatility elevated until a central theme comes along and establishes a trend.

"It is increasingly looking like the early driver is going to be Chinese demand destruction."

Another factor that left investors unimpressed on Friday was the U.S. Department of Energy buying 2.4 million barrels of oil for the Strategic Petroleum Reserve.

Friday also saw yet more predictions of oil's long-term fate in the form of Russell Hardy, CEO of Vitol (the world's largest independent energy trader), who told a commodities summit in Singapore that "The petroleum, the oil business, we still think it will reach a peak at some point, about 10 years ahead from where we are today."

Hardy added, "So we quite like the idea of being involved in the bigger metal markets. And the three bigger metal markets are steel and iron ore, copper and aluminum."

Vitol in 2024 acquired Noble Resources, a trader specializing in oil, coal and metallurgical coke, in addition to recruiting two other metal traders from Mercuria.