Oil prices dropped more than 2% on Monday, driven by investor disappointment over China’s latest economic stimulus package and concerns over rising supply in 2025. The price decline was further amplified by a stronger US dollar, which tends to put pressure on commodity prices, including oil.
Brent crude futures settled at $71.83 a barrel, falling by $2.04 or 2.76%, while US West Texas Intermediate (WTI) crude futures closed at $68.04 a barrel, down by $2.34, or 3.32%. Both benchmarks also lost more than 2% on Friday, continuing a downward trend.
China’s Stimulus Disappoints Investors
China, the world’s second-largest oil consumer, had hoped its latest stimulus package would help boost economic activity and oil demand. However, the measures fell short of expectations, leaving investors wary about the future of Chinese demand. On top of that, China’s inflation data painted a concerning picture, with consumer prices rising at the slowest pace in four months and producer price deflation deepening. This has raised fears of potential deflation and weaker economic momentum, further weighing on global oil prices.
“Chinese inflation figures remain weak, and there’s growing concern about deflation, especially with producer prices falling deeper into negative territory,” said Achilleas Georgolopoulos, an analyst at brokerage XM.
US Election and Strong Dollar Impact Oil
The US dollar index has also been on the rise, which adds downward pressure on oil prices. A stronger dollar makes oil more expensive for international buyers, leading to decreased demand. This trend has been compounded by uncertainties surrounding US policies following Donald Trump’s election victory. According to Phil Flynn, a senior analyst at Price Futures Group, Trump’s “drill, baby, drill” approach to energy policy has made some investors hesitant to bet on higher oil prices, as it signals potential increases in US production.
Supply Growth Looms in 2025
Looking ahead, supply-side pressures are expected to increase in 2025. According to a recent note from Bank of America Securities, non-OPEC crude production is projected to grow by 1.4 million barrels per day (bpd) in 2025, with further growth of 900,000 bpd in 2026. This surge in non-OPEC supply, coupled with an underwhelming Chinese stimulus, could lead to a rise in global oil inventories, even without additional production increases from OPEC+.
In fact, OPEC+ had originally planned to raise supply by 180,000 bpd in December, but the group agreed to delay the increase until January.
Hurricane Rafael Disrupts US Production
On the production front, the US offshore oil sector has faced disruptions due to Hurricane Rafael. As of Monday, nearly 26% of US crude oil production and 13% of natural gas output remained offline due to the storm. While the storm has since weakened, its impact on production continues to be felt in the Gulf of Mexico.
What’s Next for Oil Prices?
With a weaker outlook for China’s economy, growing supply expectations, and a stronger US dollar, oil prices may face continued pressure in the coming months. Traders will be closely monitoring further developments in the US election